Collective Moral Hazard, Risk Sharing, and Banking Unions*

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ID: 313651
2026
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Abstract
Abstract We analyze optimal cross-country risk sharing and bank capital requirements amid collective moral hazard by governments and banks. Transfers provide insurance but weaken fiscal discipline. Since lenient fiscal policies amplify banks’ risk-shifting, optimal support must be contingent on banking system health. For fiscally weak countries, support is larger in sovereign crises with solvent banks. For fiscally strong countries, support is larger in joint sovereign and bank crises, requiring deposit insurance mutualization. Optimal contracts feature lower capital requirements than without cross-country transfers, raising the cost of joint sovereign and bank crises to strengthen fiscal discipline and enable greater risk sharing.
Reference Key
openalex_W7161015401 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Anatoli Segura, Sérgio Vicente
Journal review of financial studies
Year 2026
DOI
10.1093/rfs/hhag024
URL
https://doi.org/10.1093/rfs/hhag024
Keywords Keywords not found

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