Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235334 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8964
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
We model a banking union of two countries whose banking sectors differ in their average probability of failure and externalities between the two countries arise from cross-border bank ownership. The two countries face (i) a regulatory decision of which banks are to be shut down before they can go bankrupt, and (ii) a loss allocation – or bailout – decision of who pays for banks that have failed despite regulatory oversight. Each of these choices can either be taken in a centralized or in a decentralized way. In our benchmark model the two countries always agree on a centralized regulation policy. In contrast, bailout policies are centralized only when international spillovers from cross-border bank ownership are strong, and banking sectors are highly profitable.
Subjects: 
banking union
bank regulation
bailout policies
JEL: 
G28
F33
H87
Document Type: 
Working Paper
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