This paper seeks to understand the interplay between banks, bank regulation, sovereign default risk and central bank … guarantees in a monetary union. I assume that banks can use sovereign bonds for repurchase agreements with a common central bank … cheaply, effectively shifting the risk of some of the potential sovereign default losses on the common central bank …

untraded consumer goods in an uncertain productive environment, borrowing funds from a bank in either the home or the foreign … of bank failure is partly borne by taxpayers in the banks' home countries. Moreover, each bank chooses the share of its … lending allocated between domestic and foreign firms, but the bank's overall loan volume is fixed by a capital requirement set …

Most theoretical central bank models use short horizons and focus on a single tradeoff. However, in reality central … bankruptcy. We term these factors discipline and stability effects, respectively. The central bank's welfare decreases with …