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  • Open Daily: 10am - 10pm
    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
Fiscal Burden Sharing in Cross-Border Banking Crises

Fiscal Burden Sharing in Cross-Border Banking Crises

Schoenmaker, Dirk
International Journal of Central Banking
Goodhart, Charles

Paperback

General Political Science

Publisher Price: $15.75

ISBN10: 1249560152
ISBN13: 9781249560159
Publisher: Bibliogov
Published: Sep 27 2012
Pages: 28
Weight: 0.15
Height: 0.06 Width: 7.44 Depth: 9.69
Language: English
This paper focuses on the recapitalization of failing banks. A recapitalization is efficient if the social benefits (preserving systemic stability) exceed the cost of recapitalization. In a national setting, the implementation of an optimal policy is relatively straightforward. But in a cross-border setting, one is confronted with possible coordination failure. Using a multicountry model, it is shown that ex post negotiations on burden sharing lead to an underprovision of recapitalizations. Next, we explore different ex ante burden sharing mechanisms to overcome the coordination failure. The first is a general scheme financed collectively by the participating countries (generic burden sharing). The second relates the burden to the location of the assets of the bank to be recapitalized (specific burden sharing). The working of the two mechanisms is calibrated with data on large cross border banks in Europe. Because the costs and benefits are better aligned in the specific scheme, it is better able to overcome the coordination failure.

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