Blanket guarantee and restructuring decisions for multinational banks in a bargaining model
AbstractThis paper examines blanket guarantee and restructuring decisions in respect of a multinational bank (MNB) using Nash bargaining, when the threat of a panic motivates countries to take decisions quickly. The failure of the bank would cause unevenly distributed externalities between the countries concerned, which influences restructuring incentives. In equilibrium, the bank is either liquidated or one – or both of the countries – recapitalizes it. The partition of the recapitalisation costs is sensitive to the country-specific benefits and costs from recapitalisation, panics and liquidation. The home regulator benefits from the privilege of being 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 InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 16/2009.
Length: 37 pages
Date of creation: 03 Aug 2009
Date of revision:
banking crises; bank restructuring; blanket guarantee; bargaining; deposit insurance;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-30 (All new papers)
- NEP-BAN-2009-08-30 (Banking)
- NEP-IAS-2009-08-30 (Insurance Economics)
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