What is it about?
What are the incentives for cooperation between countries when an international bank fails? Only a binding treaty, such as Banking Union in Europe, can make such cooperation work in crisis times. The alternative is that each country resolves the national part in its jurisdiction independently leading to higher costs.
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Why is it important?
The reforms after the Great Financial Crisis provide for more capital in large global banks, but do not solve the issue of international cooperation in case of failure. So a failure of a large bank can still be chaotic, like the failure of Lehman Brothers or Fortis.
Perspectives
International cooperation between supervisors and resolution authorities is based on trust (written down in soft law). That is not realistic. This article applies game theory to predict the behaviour of authorities in crisis time (which is a one shot game).
Dirk Schoenmaker
Erasmus Universiteit Rotterdam
Read the Original
This page is a summary of: Resolution of international banks: Can smaller countries cope?, International Finance, October 2017, Wiley,
DOI: 10.1111/infi.12123.
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