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A bank's interest expenses rise with its degree of internationalization, measured by its share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration, especially if the bank is performing badly. The results in this paper suggest that an international bank's cost of funds raised through a foreign subsidiary is 1.5-2.4 percent higher than the cost of funds for a purely domestic bank. That is a sizeable difference, given that the overall mean cost of funds is 3.3 percent. These results can be explained by limited incentives for national authorities to bail out an international bank, as well as an inefficient recovery and resolution process for international banks. In any event, a less reliable financial safety net appears to be a barrier to cross-border banking.

Access to Finance --- Bank bailouts --- Banks & Banking Reform --- Cross-border banking --- Debt Markets --- Economic Theory & Research --- Emerging Markets --- Finance and Financial Sector Development --- International burden sharing --- Private Sector Development

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This paper develops a simple model of international lending, and calibrates it to assess quantitatively the effects of contingent IMF financial support on the risk premiums and the crisis probability. In the model, the country borrows in both short and long term; market (coordination) failure triggers a liquidity run and inefficient default; and the IMF lends unconditionally under a preferred creditor status. The model shows that IMF financial support can help prevent a liquidity crisis without causing investor moral hazard by helping to remove a distortion-effectively subsidizing ex post short-term investors (who run for the exit) at the expense of long-term investors (who are locked in). The resulting equilibrium is welfare enhancing as both the country's borrowing costs and the likelihood of a crisis are lower. The calibration exercises suggest that IMF-induced investor moral hazard-which occurs if the IMF lends at a subsidized rate-is unlikely to be a concern in practice, particularly if the country's economic fundamentals are strong and short-term debt is small.

Banks and Banking --- Finance: General --- Financial Risk Management --- Investments: General --- General Financial Markets: Government Policy and Regulation --- Investment --- Capital --- Intangible Capital --- Capacity --- Financial Institutions and Services: Government Policy and Regulation --- General Financial Markets: General (includes Measurement and Data) --- Finance --- Macroeconomics --- Economic & financial crises & disasters --- Moral hazard --- Return on investment --- Bank bailouts --- Emerging and frontier financial markets --- Crisis prevention --- Financial risk management --- Saving and investment --- Crisis management --- Financial services industry --- Mexico --- Moral hazard. --- Loans, Foreign.

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In a rational-expectations framework, we model depositors' confidence as a function of the probability of future bank bailouts. We analyze the effect of alternative bank bailout policies on depositors' confidence in an emerging market setting, where liquidity shortages of banks are revealed sequentially and governments cannot credibly commit to bailing out all potentially distressed banks. Our findings suggest that allowing early bank failures and using available liquidity for credible commitments to later bailouts can better boost confidence than early bailouts. This conclusion arises because with a high chance of liquidity shortage in the future, depositors may lose confidence and hence withdraw deposits even from potentially sound banks. Such a policy of late bailouts is likely to receive political support when a full bailout needs to be financed by taxation. The logic of late bailout remains valid even when banks may hide their distress or when closures of early distressed banks create contagion.

Bank failures --- Liquidity (Economics) --- Econometric models. --- Assets, Frozen --- Frozen assets --- Failure of banks --- Finance --- Business failures --- Banks and Banking --- Finance: General --- Financial Risk Management --- Macroeconomics --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Portfolio Choice --- Investment Decisions --- Financial Institutions and Services: Government Policy and Regulation --- Macroeconomics: Consumption --- Saving --- Wealth --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Banking --- Economic & financial crises & disasters --- Financial services law & regulation --- Liquidity --- Bank bailouts --- Blanket guarantee --- Consumption --- Asset and liability management --- Financial crises --- National accounts --- Liquidity risk --- Financial regulation and supervision --- Banks and banking --- Economics --- Crisis management --- Financial risk management --- Korea, Republic of