English
 
Help Privacy Policy Disclaimer
  Advanced SearchBrowse

Item

ITEM ACTIONSEXPORT

Released

Paper

Sovereign Defaults, Bank Runs, and Contagion

MPS-Authors
/persons/resource/persons183164

Luck,  Stephan
Max Planck Institute for Research on Collective Goods, Max Planck Society;

/persons/resource/persons183191

Schempp,  Paul
Max Planck Institute for Research on Collective Goods, Max Planck Society;

Fulltext (restricted access)
There are currently no full texts shared for your IP range.
Fulltext (public)
There are no public fulltexts stored in PuRe
Supplementary Material (public)
There is no public supplementary material available
Citation

Luck, S., & Schempp, P. (2014). Sovereign Defaults, Bank Runs, and Contagion.


Cite as: http://hdl.handle.net/11858/00-001M-0000-0028-6F18-2
Abstract
We provide a model that unifies the notion of self-fulfilling banking crises and sovereign debt crises. In this model, a bank run can be contagious by triggering a sovereign default, and vice versa. A deposit insurance scheme can eliminate the adverse equilibrium only if the government can repay its debt and credibly insure deposits irrespective of the performance of the financial sector. Moreover, we analyze how banking crises and sovereign defaults can be contagious across countries. We give conditions under which the implementation of a banking union is effective and costless. Finally, we discuss the current proposals for a banking union in the euro area and argue that it should be extended by a supranational Deposit Guarantee Scheme.