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Common Deposit Insurance, Cross-Border Banks and Welfare

Author

Listed:
  • Gyöngyi Lóránth

    (University of Vienna & CEPR)

  • Anatoli Segura

    (Banca d’Italia & CEPR)

  • Jing Zeng

    (University of Bonn & CEPR)

Abstract

We study the effects of aligning the incentives of national authorities through the common provision of deposit insurance in a model of cross-border banks with both endogenous risk-taking and within-group risk-sharing. Under national deposit insurance, local authorities inefficiently ring-fence resources owing from healthy to impaired subsidiaries. A single authority responsible for a common deposit insurance fund does not ring-fence. This encourages cross-border integration, but has an ambiguous impact on banks' risk-taking. Overall, common deposit insurance increases welfare when the fundamental risk in the economy is high but otherwise can lead to excessive cross-border integration and lower welfare.

Suggested Citation

  • Gyöngyi Lóránth & Anatoli Segura & Jing Zeng, 2026. "Common Deposit Insurance, Cross-Border Banks and Welfare," ECONtribute Discussion Papers Series 422, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:422
    as

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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G2 - Financial Economics - - Financial Institutions and Services

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