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Title:Bank bailouts, international linkages and cooperation PDF Logo
Authors:Niepmann, Friederike
Schmidt-Eisenlohr, Tim
Issue Date:2011
Series/Report no.:CESifo working paper: Monetary Policy and International Finance 3384
Abstract:Financial institutions are increasingly linked internationally. As a result, financial crisis and government intervention have stronger effects beyond borders. We provide a model of international contagion allowing for bank bailouts. While a social planner trades off tax distortions, liquidation losses and intra- and inter-country income inequality, in the non-cooperative game between governments there are inefficiencies due to externalities, no burden sharing and free-riding. We show that, in absence of cooperation, stronger interbank linkages make government interests diverge, whereas cross-border asset holdings tend to align them. We analyze different forms of cooperation and their effects on global and national welfare.
Subjects:bailout
contagion
financial crisis
international institutional arrangements
JEL:F36
F42
G01
G28
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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