Voluntary support and ring-fencing in cross-border banks

Arbeitspapier

We study supervisory interventions in cross-border banks under different institutional architectures in a model in which a bank may provide voluntary support to an impaired subsidiary using resources from a healthy subsidiary. While supranational architecture permits voluntary support, national architecture gives rise to inefficient ring-fencing of a healthy subsidiary when there is high correlation between the subsidiaries' assets. The enhanced cross-subsidiary support allowed by a supranational architecture affects banks' risk-taking, leading to a convergence of the default risk among cross-border banks with heterogeneous fundamentals. Finally, supranational architecture reduces the expected deposit insurance costs for banks with riskier fundamentals, but not for safer banks even when it could still be aggregate welfare improving.

Object Details

• ISBN: 978-92-899-5272-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2688

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions
• Subject: cross-border bank ; supervisory intervention ; supranational supervision ; voluntarysupport ; ring-fencing

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lóránth, Gyöngyi ; Segura, Anatoli ; Zeng, Jing
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2022

Further information

• DOI: doi:10.2866/05325
• Handle: http://hdl.handle.net/10419/269095
• Last update: 10.03.2025, 11:43 AM CET