IDEAS home Printed from https://ideas.repec.org/p/fmg/fmgsps/sp164.html
   My bibliography  Save this paper

Burden Sharing in a Banking Crisis in Europe

Author

Listed:
  • Dirk Schoenmaker
  • Charles Goodhart

    ()

Abstract

Pan-European banks are starting to emerge, while arrangements for financial supervision and stability are still nationally rooted. This raises the issue who should bear the burden of any proposed recapitalisation should failures occur in large cross-border banks. A recapitalisation is efficient if the social benefits (preserving systemic stability) exceed the cost of recapitalisation. Using the multi-country model of Freixas (2003), it is shown that ex post negotiations on burden sharing lead to an underprovision of recapitalisations.We explore different ex ante burden sharing mechanisms. The first is a general scheme financed from the seigniorage of participating central banks (generic burden sharing). The second relates the burden to the location of the assets of the bank to be recapitalised (specific burden sharing). As a country's benefits and that country's contribution to the costs are better aligned in the specific scheme, the latter is better able to overcome the co-ordination failure. Finally, decision-making procedures for administering an ex ante burden sharing mechanism are required.Download Paper

Suggested Citation

  • Dirk Schoenmaker & Charles Goodhart, 2006. "Burden Sharing in a Banking Crisis in Europe," FMG Special Papers sp164, Financial Markets Group.
  • Handle: RePEc:fmg:fmgsps:sp164
    as

    Download full text from publisher

    File URL: http://www.lse.ac.uk/fmg/documents/specialPapers/2006/sp164.pdf
    Download Restriction: no

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fmg:fmgsps:sp164. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (The FMG Administration). General contact details of provider: http://www.lse.ac.uk/fmg/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.