Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2012-10-24
Number: 12-111/IV/DSF43
Author-Name: Dirk Schoenmaker
Author-Workplace-Name: Duisenberg School of Finance, VU University Amsterdam
Author-Name: Arjen Siegmann
Author-Workplace-Name: VU University Amsterdam
Title: Can European Bank Bailouts work?
Abstract: Cross‐border banking needs cross‐border recapitalisation mechanisms. Each mechanism, however, suffers from the financial trilemma, which is that cross‐border banking, national financial autonomy and financial stability are incompatible. In this paper, we study the efficiency of different burden sharing agreements for the recapitalisation of the 30 largest banks in Europe. We consider bank bailouts for these banks in a simulation framework with stochastic country‐specific bailout benefits. Among the burden sharing rules, we find that the majority and qualified‐majority voting rules come close to the efficiency of a bailout mechanism with a supranational authority. Even a unanimous voting rule works better than home‐country bailouts, which are very inefficient.
Classification-JEL: F33, G28, H41
Keywords: Financial Stability, Public Good, International Monetary Arrangements, International
File-Url: https://papers.tinbergen.nl/12111.pdf
File-Format: application/pdf
File-Size: 802750 bytes
Handle: RePEc:tin:wpaper:20120111