IDEAS home Printed from https://ideas.repec.org/p/zbw/zewdip/1492.html
   My bibliography  Save this paper

Incentive Problems in Banking Supervision: The European Case

Author

Listed:
  • Schüler, Martin

Abstract

This paper discusses the incentive conflicts that arise in banking supervision in the EU in a principal-agent framework, where the regulator is the agent and the taxpayers is the principal. The regulatory agent in addition to maintaining financial stability (the objective of the principal) may pursue private interests. Incomplete information, insufficient accountability of the agent and lack of enforceability of compliance result in an incentive problem. A reform of the European supervisory system complemented by strengthening market discipline based on improved disclosure of both the supervisor and the banks may help to solve the European incentive problem.

Suggested Citation

  • Schüler, Martin, 2003. "Incentive Problems in Banking Supervision: The European Case," ZEW Discussion Papers 03-62, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:1492
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/23996/1/dp0362.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Boot, Arnoud W A & Thakor, Anjan V, 1993. "Self-Interested Bank Regulation," American Economic Review, American Economic Association, vol. 83(2), pages 206-212, May.
    2. Stéphanie Stolz, 2002. "Banking Supervision in Integrated Financial Markets: Implications for the EU," CESifo Working Paper Series 812, CESifo.
    3. repec:onb:oenbwp:y::i:48:b:1 is not listed on IDEAS
    4. Giammarino, Ronald M & Lewis, Tracy R & Sappington, David E M, 1993. "An Incentive Approach to Banking Regulation," Journal of Finance, American Finance Association, vol. 48(4), pages 1523-1542, September.
    5. Edward J. Kane, 1991. "Financial Regulation and Market Forces," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 127(III), pages 325-342, September.
    6. Campbell, Tim S. & Chan, Yuk-Shee & Marino, Anthony M., 1992. "An incentive-based theory of bank regulation," Journal of Financial Intermediation, Elsevier, vol. 2(3), pages 255-276, September.
    7. Xavier Vives, 2001. "Restructuring Financial Regulation in the European Monetary Union," Journal of Financial Services Research, Springer;Western Finance Association, vol. 19(1), pages 57-82, February.
    8. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    9. Calomiris, Charles W., 1999. "Building an incentive-compatible safety net," Journal of Banking & Finance, Elsevier, vol. 23(10), pages 1499-1519, October.
    10. Frederic S. Mishkin, 2001. "Prudential Supervision: Why Is It Important and What Are the Issues?," NBER Chapters, in: Prudential Supervision: What Works and What Doesn't, pages 1-30, National Bureau of Economic Research, Inc.
    11. Dag Morten Dalen & Trond Olsen, 2003. "Regulatory Competition and Multi-national Banking," CESifo Working Paper Series 971, CESifo.
    12. Sharpe, Steven A, 1990. "Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-1087, September.
    13. Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
    14. Kane, Edward J, 1990. "Principal-Agent Problems in S&L Salvage," Journal of Finance, American Finance Association, vol. 45(3), pages 755-764, July.
    15. David T. Llewellyn, 2001. "A regulatory regime for financial stability," Working Papers 48, Oesterreichische Nationalbank (Austrian Central Bank).
    16. Cornelia Holthausen & Thomas Rønde, 2003. "Cooperation in International Banking Supervision," CIE Discussion Papers 2004-02, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    17. Charles A. E. Goodhart, 1996. "An Incentive Structure for Financial Regulation," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 132(IV), pages 637-648, December.
    18. Giacomo Calzolari & Gyongyi Loranth, 2001. "On the Regulation of Multinational Banks," Rivista di Politica Economica, SIPI Spa, vol. 91(4), pages 297-297, April-May.
    19. anonymous, 1999. "Using subordinated debt as an instrument of market discipline," Staff Studies 172, Board of Governors of the Federal Reserve System (U.S.).
    20. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
    21. Schüler, Martin & Schröder, Michael, 2003. "Systemic Risk in European Banking: Evidence from Bivariate GARCH Models," ZEW Discussion Papers 03-11, ZEW - Leibniz Centre for European Economic Research.
    22. Arnoud Boot & Silva Dezõelan & Todd Milbourn, 1999. "Regulatory Distortions in a Competitive Financial Services Industry," Journal of Financial Services Research, Springer;Western Finance Association, vol. 16(2), pages 249-259, December.
    23. Friedrich Heinemann & Martin Schüler, 2004. "A Stiglerian View on Banking Supervision," Public Choice, Springer, vol. 121(1), pages 99-130, October.
    24. Hans-Werner Sinn, 2002. "Risktaking, Limited Liability, and the Competition of Bank Regulators," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(3), pages 305-329, August.
    25. Asli Demirgüč-Kunt, 1991. "Principal-agent problems in commercial-bank failure decisions," Working Papers (Old Series) 9106, Federal Reserve Bank of Cleveland.
    26. Mr. Robert Marquez & Mr. Giovanni Dell'Ariccia, 2001. "Competition Among Regulators," IMF Working Papers 2001/073, International Monetary Fund.
    27. Speyer, Bernhard, 2001. "Internationalisation of banking and banking supervision," Research Notes 01-7, Deutsche Bank Research.
    28. Schüler, Martin, 2003. "How Do Banking Supervisors Deal with Europe-wide Systemic Risk?," ZEW Discussion Papers 03-03, ZEW - Leibniz Centre for European Economic Research.
    29. Edward Kane, 1997. "Ethical Foundations of Financial Regulation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(1), pages 51-74, August.
    30. Bernheim, B Douglas & Whinston, Michael D, 1986. "Common Agency," Econometrica, Econometric Society, vol. 54(4), pages 923-942, July.
    31. Portes,, 1987. "Threats to International Financial Stability," Cambridge Books, Cambridge University Press, number 9780521347891.
    32. Ronald A. Dye, 1986. "Optimal Monitoring Policies in Agencies," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 339-350, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sándor Gardó, 2010. "Bank Governance and Financial Stability in CESEE: A Review of the Literature," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 6-31.
    2. Mr. Marc G Quintyn & Ms. Rosaria Vega Pansini & Donato Masciandaro, 2011. "The Economic Crisis: Did Financial Supervision Matter?," IMF Working Papers 2011/261, International Monetary Fund.
    3. Edward J. Kane, 2006. "Confronting Divergent Interests in Cross-Country Regulatory Arrangements," World Scientific Book Chapters, in: Gerard Caprio Jr & Douglas D Evanoff & George G Kaufman (ed.), Cross-Border Banking Regulatory Challenges, chapter 18, pages 265-285, World Scientific Publishing Co. Pte. Ltd..
    4. Jakub Gren & David Howarth & Lucia Quaglia, 2015. "Supranational Banking Supervision in Europe: The Construction of a Credible Watchdog," Journal of Common Market Studies, Wiley Blackwell, vol. 53, pages 181-199, September.
    5. D'Hulster, Katia, 2011. "Cross border banking supervision : incentive conflicts in supervisory information sharing between home and host supervisors," Policy Research Working Paper Series 5871, The World Bank.
    6. Robert A. Eisenbeis & George G. Kaufman, 2007. "Cross-border banking: challenges for deposit insurance and financial stability in the European Union," FRB Atlanta Working Paper 2006-15, Federal Reserve Bank of Atlanta.
    7. Donato Masciandaro & Marc Quintyn, 2013. "The Evolution of Financial Supervision: the Continuing Search for the Holy Grail," SUERF 50th Anniversary Volume Chapters, in: Morten Balling & Ernest Gnan (ed.), 50 Years of Money and Finance: Lessons and Challenges, chapter 8, pages 263-318, SUERF - The European Money and Finance Forum.
    8. Masciandaro, Donato & Pansini, Rosaria Vega & Quintyn, Marc, 2013. "The economic crisis: Did supervision architecture and governance matter?," Journal of Financial Stability, Elsevier, vol. 9(4), pages 578-596.
    9. Christoph Walkner & Jean-Pierre Raes, 2005. "Integration and consolidation in EU banking - an unfinished business," European Economy - Economic Papers 2008 - 2015 226, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Georges Dionne, 2003. "The Foundationsof Banks' Risk Regulation: A Review of Literature," THEMA Working Papers 2003-46, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    2. Holopainen, Helena, 2007. "Integration of financial supervision," Bank of Finland Research Discussion Papers 12/2007, Bank of Finland.
    3. João A. C. Santos, 2000. "Bank capital regulation in contemporary banking theory: a review of the literature," BIS Working Papers 90, Bank for International Settlements.
    4. Xavier Freixas & Anthony M. Santomero, 2002. "An overall perspective on banking regulation," Working Papers 02-1, Federal Reserve Bank of Philadelphia.
    5. Holopainen, Helena, 2007. "Integration of financial supervision," Research Discussion Papers 12/2007, Bank of Finland.
    6. Thakor, Anjan V., 1996. "The design of financial systems: An overview," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 917-948, June.
    7. repec:zbw:bofrdp:2007_012 is not listed on IDEAS
    8. Richard W. Kopcke, 2000. "Deposit insurance, capital requirements, and financial stability," Working Papers 00-3, Federal Reserve Bank of Boston.
    9. Dag Morten Dalen & Trond Olsen, 2003. "Regulatory Competition and Multi-national Banking," CESifo Working Paper Series 971, CESifo.
    10. Rochet, Jean-Charles, 2004. "Macroeconomic shocks and banking supervision," Journal of Financial Stability, Elsevier, vol. 1(1), pages 93-110, September.
    11. Monika Marcinkowska, 2013. "Regulation and self-regulation in banking: in search of optimum," Bank i Kredyt, Narodowy Bank Polski, vol. 44(2), pages 119-158.
    12. Kahn, Charles M. & Santos, Joao A.C., 2005. "Allocating bank regulatory powers: Lender of last resort, deposit insurance and supervision," European Economic Review, Elsevier, vol. 49(8), pages 2107-2136, November.
    13. Bouwman, Christa H. S., 2013. "Liquidity: How Banks Create It and How It Should Be Regulated," Working Papers 13-32, University of Pennsylvania, Wharton School, Weiss Center.
    14. Li, Jing, 2017. "Accounting for banks, capital regulation and risk-taking," Journal of Banking & Finance, Elsevier, vol. 74(C), pages 102-121.
    15. repec:hal:spmain:info:hdl:2441/293qice3lj861rvos9ns14n0h0 is not listed on IDEAS
    16. Thomas Barnebeck Andersen & Finn Tarp, 2003. "Financial liberalization, financial development and economic growth in LDCs," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(2), pages 189-209.
    17. Ion LAPTEACRU, 2022. "What drives the risk of European banks during crises? New evidence and insights," Bordeaux Economics Working Papers 2022-02, Bordeaux School of Economics (BSE).
    18. Freixas, Xavier & Gabillon, Emmanuelle, 1999. "Optimal Regulation of a Fully Insured Deposit Banking System," Journal of Regulatory Economics, Springer, vol. 16(2), pages 111-134, September.
    19. Robert A. Eisenbeis & George G. Kaufman, 2007. "Cross-border banking: challenges for deposit insurance and financial stability in the European Union," FRB Atlanta Working Paper 2006-15, Federal Reserve Bank of Atlanta.
    20. Beverly Hirtle & Anna Kovner, 2022. "Bank Supervision," Annual Review of Financial Economics, Annual Reviews, vol. 14(1), pages 39-56, November.
    21. Mario Di Filippo & Angelo Ranaldo & Jan Wrampelmeyer, 2022. "Unsecured and Secured Funding," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(2-3), pages 651-662, March.
    22. Dell'Ariccia, Giovanni & Marquez, Robert, 2006. "Competition among regulators and credit market integration," Journal of Financial Economics, Elsevier, vol. 79(2), pages 401-430, February.

    More about this item

    Keywords

    banking regulation and supervision; principal-agent; European Union;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:zewdip:1492. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/zemande.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.