The ‘Celtic Crisis’: Guarantees, transparency, and systemic liquidity risk

Konferenzbeitrag

Bank liability guarantee schemes have traditionally been viewed as costless measures to shore up investor confidence and stave off bank runs. However, as the experience of some European countries, most notably Ireland, has demonstrated, the credibility and effectiveness of these guarantees is crucially intertwined with the sovereign's funding risks. Employing methods from the literature on global games, we develop a simple model to explore the functional co-dependence between the rollover risks of a bank and a government, which are connected through the government's guarantee of bank liabilities. We show the existence and uniqueness of the joint equilibrium and derive its comparative static properties. In solving for the optimal guarantee, we further show that its credibility may be improved through policies that promote balance sheet transparency.

Show object

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2013: Wettbewerbspolitik und Regulierung in einer globalen Wirtschaftsordnung - Session: Crisis ; No. C19-V1

Classification and Topics

• Classification: Wirtschaft ; Financial Crises ; Information and Uncertainty: Other ; Financial Institutions and Services: Government Policy and Regulation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): König, Philipp ; Anand, Kartik ; Heinemann, Frank
• Event: Veröffentlichung
• (who): ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
• (where): Kiel und Hamburg
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/79747