Can European Bank Bailouts work?
AbstractCross‐border banking needs cross‐border recapitalisation mechanisms. Each mechanism, however, suffers from the financial trilemma, which is that cross‐border banking, national financial autonomy and financial stability are incompatible. In this paper, we study the efficiency of different burden sharing agreements for the recapitalisation of the 30 largest banks in Europe. We consider bank bailouts for these banks in a simulation framework with stochastic country‐specific bailout benefits. Among the burden sharing rules, we find that the majority and qualified‐majority voting rules come close to the efficiency of a bailout mechanism with a supranational authority. Even a unanimous voting rule works better than home‐country bailouts, which are very inefficient.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 12-111/IV/DSF43.
Date of creation: 24 Oct 2012
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Financial Stability; Public Good; International Monetary Arrangements; International;
Find related papers by JEL classification:
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-15 (All new papers)
- NEP-BAN-2012-12-15 (Banking)
- NEP-CBA-2012-12-15 (Central Banking)
- NEP-CMP-2012-12-15 (Computational Economics)
- NEP-EEC-2012-12-15 (European Economics)
- NEP-POL-2012-12-15 (Positive Political Economics)
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