Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269095 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2688
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We study supervisory interventions in cross-border banks under different institutional architectures in a model in which a bank may provide voluntary support to an impaired subsidiary using resources from a healthy subsidiary. While supranational architecture permits voluntary support, national architecture gives rise to inefficient ring-fencing of a healthy subsidiary when there is high correlation between the subsidiaries' assets. The enhanced cross-subsidiary support allowed by a supranational architecture affects banks' risk-taking, leading to a convergence of the default risk among cross-border banks with heterogeneous fundamentals. Finally, supranational architecture reduces the expected deposit insurance costs for banks with riskier fundamentals, but not for safer banks even when it could still be aggregate welfare improving.
Subjects: 
cross-border bank
supervisory intervention
supranational supervision
voluntarysupport
ring-fencing
JEL: 
D8
G11
G2
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5272-9
Document Type: 
Working Paper

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