Guarantees, transparency and the interdependency between sovereign and bank default risk

dc.contributor.authorKönig, Philipp
dc.contributor.authorAnand, Kartik
dc.contributor.authorHeinemann, Frank
dc.date.accessioned2022-02-07T17:56:37Z
dc.date.available2022-02-07T17:56:37Z
dc.date.issued2014-04-03
dc.description.abstractBank debt guarantees have traditionally been viewed as costless measures to prevent bank runs. However, as recent experiences in some European countries have demonstrated, guarantees may link the coordination problems of bank and sovereign creditors and induce a functional interdependence between the likelihoods of a government default and bank illiquidity. Employing a global-game approach, we model this link, showing the existence and uniqueness of the joint equilibrium and derive its comparative statics properties. In equilibrium, the guarantee reduces the probability of a bank run, while it increases the probability of a sovereign default. The latter erodes the guarantee’s credibility and thus its effectiveness ex ante. By setting the guarantee optimally, the government balances these two effects in order to minimize expected costs of crises. Our results show that the optimal guarantee has clear-cut welfare gains which are enhanced through policies that promote greater balance sheet transparency.en
dc.description.sponsorshipDFG, 5486220, SFB 649: Ökonomisches Risikoen
dc.identifier.eissn1872-6372
dc.identifier.issn0378-4266
dc.identifier.urihttps://depositonce.tu-berlin.de/handle/11303/16308
dc.identifier.urihttp://dx.doi.org/10.14279/depositonce-15083
dc.language.isoenen
dc.rights.urihttps://creativecommons.org/licenses/by-nc-nd/4.0/en
dc.subject.ddc330 Wirtschaftde
dc.subject.otherbank debt guaranteesen
dc.subject.othertransparencyen
dc.subject.otherbank defaulten
dc.subject.othersovereign defaulten
dc.subject.otherglobal gamesen
dc.titleGuarantees, transparency and the interdependency between sovereign and bank default risken
dc.typeArticleen
dc.type.versionacceptedVersionen
dcterms.bibliographicCitation.doi10.1016/j.jbankfin.2014.03.007en
dcterms.bibliographicCitation.journaltitleJournal of Banking and Financeen
dcterms.bibliographicCitation.originalpublishernameElsevieren
dcterms.bibliographicCitation.originalpublisherplaceAmsterdam [u.a.]en
dcterms.bibliographicCitation.pageend337en
dcterms.bibliographicCitation.pagestart321en
dcterms.bibliographicCitation.volume45en
tub.accessrights.dnbfreeen
tub.affiliationFak. 7 Wirtschaft und Management>Inst. Volkswirtschaftslehre und Wirtschaftsrecht (IVWR)>FG Makroökonomikde
tub.affiliation.facultyFak. 7 Wirtschaft und Managementde
tub.affiliation.groupFG Makroökonomikde
tub.affiliation.instituteInst. Volkswirtschaftslehre und Wirtschaftsrecht (IVWR)de
tub.publisher.universityorinstitutionTechnische Universität Berlinen
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