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Common Deposit Insurance, Cross-Border Banks and Welfare

Author

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  • Gyöngyi Loranth

  • Anatoli Segura

  • Jing Zeng

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 flowing from healthy to impaired subsidiaries. A single authority respon sible 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 in surance 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 Loranth & Anatoli Segura & Jing Zeng, 2026. "Common Deposit Insurance, Cross-Border Banks and Welfare," CRC TR 224 Discussion Paper Series crctr224_2025_769, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2025_769
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp769
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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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