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Blanket guarantee and restructuring decisions for multinational banks in a bargaining model

  • Niinimäki, Juha-Pekka

    ()

    (Bank of Finland Research)

  • Mälkönen, Ville

    ()

    (Government Institute for Economic Research)

Registered author(s):

    This 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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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0916netti.pdf
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    Paper provided by Bank of Finland in its series Research Discussion Papers with number 16/2009.

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    Length: 37 pages
    Date of creation: 03 Aug 2009
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2009_016
    Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/

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    1. Holthausen, Cornelia & Rønde, Thomas, 2000. "Regulating access to international large-value payment systems," Working Paper Series 0022, European Central Bank.
    2. Rafael Repullo, 2001. "A model of takeovers of foreign banks," Spanish Economic Review, Springer, vol. 3(1), pages 1-21.
    3. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    4. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    5. George J. Mailath & Loretta J. Mester, 1993. "A positive analysis of bank closure," Working Papers 93-10/R, Federal Reserve Bank of Philadelphia.
    6. Rafael Repullo, 2004. "Policies For Banking Crises: A Theoretical Framework," Working Papers wp2004_0418, CEMFI.
    7. Eisenbeis, Robert A. & Kaufman, George G., 2008. "Cross-border banking and financial stability in the EU," Journal of Financial Stability, Elsevier, vol. 4(3), pages 168-204, September.
    8. Repullo, Rafael, 2004. "Capital requirements, market power, and risk-taking in banking," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 156-182, April.
    9. Yehning Chen & Iftekhar Hasan, 2008. "Why Do Bank Runs Look Like Panic? A New Explanation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 535-546, 03.
    10. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    11. Juha-Pekka Niinimäki, 2003. "Maturity Transformation without Maturity Mismatch and Bank Panics," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(3), pages 511-, September.
    12. Giacomo Calzolari & Gyongyi Loranth, 2001. "On the Regulation of Multinational Banks," Rivista di Politica Economica, SIPI Spa, vol. 91(4), pages 297-, April-May.
    13. Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-92, June.
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