Research Discussion Papers, Bank of Finland
No 16/2009:
Blanket guarantee and restructuring decisions for multinational banks in a bargaining model
Juha-Pekka Niinimäki ()
and Ville Mälkönen ()
Abstract: 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.
Keywords: banking crises; bank restructuring; blanket guarantee; bargaining; deposit insurance; (follow links to similar papers)
JEL-Codes: G21; G22; G28; (follow links to similar papers)
37 pages, August 3, 2009
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