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Regulatory and Bailout Decisions in a Banking Union

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  • Haufler, Andreas

    (LMU Munich and CESifo)

Abstract

We model a banking union of two countries whose banking sectors differ in their average probability of failure and externalities between the two countries arise from cross-border bank ownership. The two countries face (i) a regulatory (supervisory) decision of which banks are to be shut down before they can go bankrupt, and (ii) a bailout decision of who pays for banks that have failed despite regulatory oversight. Each of these choices can either be taken in a centralized or in a decentralized way. In our benchmark model the two countries always agree on a centralized regulation policy. In contrast, bailout policies are centralized only when international spillovers from cross-border bank ownership are strong, and banking sectors are highly profitable.

Suggested Citation

  • Haufler, Andreas, 2021. "Regulatory and Bailout Decisions in a Banking Union," Rationality and Competition Discussion Paper Series 290, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:290
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    More about this item

    Keywords

    banking union; bank regulation; bailout policies;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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