Blanket guarantee, deposit insurance and restructuring decisions for multinational banks
AbstractThis paper examines blanket guarantee, deposit insurance and restructuring decisions with respect to a multinational bank (MNB) using Nash bargaining when the threat of a bank panic motivates countries to make decisions quickly. Failure of the bank would unevenly distribute externalities across countries, influencing the restructuring incentives. In equilibrium, the bank is either liquidated or one of the countries – or both – recapitalizes it. A partition of the recapitalization costs is sensitive to the country-specific benefits and costs from recapitalization, panic and liquidation. The home regulator benefits from the advantage that it is the only entity that can legally liquidate the MNB. Rational expectations regarding the bargaining result affect the incentives to declare a blanket guarantee.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Stability.
Volume (Year): 8 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/jfstabil
Blanket guarantee; Deposit insurance; Bank run; Financial crises; Bargaining;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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