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Multinational Banks and Supranational Supervision

Author

Listed:
  • Giacomo Calzolari
  • Jean-Edouard Colliard
  • Gyongyi Lóránth

Abstract

Supervision of multinational banks (MNBs) by national supervisors suffers from coordination failures. We show that supranational supervision solves this problem and decreases the public costs of an MNB’s failure, taking its organizational structure as given. However, the MNB strategically adjusts its structure to supranational supervision. It converts its subsidiary into a branch (or vice versa) to reduce supervisory monitoring. We identify the cases in which this endogenous reaction leads to unintended consequences, such as higher public costs and lower welfare. Current reforms should consider that MNBs adapt their organizational structures to changes in supervision. Received January 9, 2017; editorial decision September 15, 2018 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Giacomo Calzolari & Jean-Edouard Colliard & Gyongyi Lóránth, 2019. "Multinational Banks and Supranational Supervision," The Review of Financial Studies, Society for Financial Studies, vol. 32(8), pages 2997-3035.
    • Handle: RePEc:oup:rfinst:v:32:y:2019:i:8:p:2997-3035.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhy116
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    Cited by:

    1. Näther, Maria & Vollmer, Uwe, 2019. "National versus supranational bank regulation: Gains and losses of joining a banking union," Economic Systems, Elsevier, vol. 43(1), pages 1-18.
    2. Roman Horvath, 2018. "Financial market fragmentation and monetary transmission in the euro area: what do we know?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 21(4), pages 319-334, October.
    3. Haselmann, Rainer & Singla, Shikhar & Vig, Vikrant, 2022. "Supranational supervision," LawFin Working Paper Series 50, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    4. Bonfim, Diana & Santos, João A.C., 2023. "The importance of deposit insurance credibility," Journal of Banking & Finance, Elsevier, vol. 154(C).
    5. Rafael Repullo, 2018. "Hierarchical bank supervision," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 9(1), pages 1-26, March.
    6. Beck, Thorsten & Silva-Buston, Consuelo & Wagner, Wolf, 2023. "The Economics of Supranational Bank Supervision," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 58(1), pages 324-351, February.
    7. Ding, Haina & Guembel, Alexander & Ozanne, Alessio, 2020. "Market Information in Banking Supervision: The Role of Stress Test Design," TSE Working Papers 20-1144, Toulouse School of Economics (TSE).
    8. Gropp, Reint & Mosk, Thomas & Ongena, Steven & Simac, Ines & Wix, Carlo, 2024. "Supranational Rules, National Discretion: Increasing Versus Inflating Regulatory Bank Capital?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 59(2), pages 830-862, March.
    9. Elena Carletti & Giovanni Dell’Ariccia & Robert Marquez, 2021. "Supervisory Incentives in a Banking Union," Management Science, INFORMS, vol. 67(1), pages 455-470, January.
    10. Gersbach, Hans & Haller, Hans & Papageorgiou, Stylianos, 2020. "Regulatory competition in banking: Curse or blessing?," Journal of Banking & Finance, Elsevier, vol. 121(C).
    11. Vittoria Cerasi & Stefano Montoli, 2020. "Bank resolution and multinational banks," Working Papers 447, University of Milano-Bicocca, Department of Economics, revised Jul 2020.
    12. Segura, Anatoli & Vicente, Sergio, 2018. "Bank resolution and public backstop in an asymmetric banking union," ESRB Working Paper Series 83, European Systemic Risk Board.
    13. Rafael Repullo, 2017. "Hierarchical Bank Supervision," Working Papers wp2018_1718, CEMFI.
    14. Haselmann, Rainer & Singla, Shikhar & Vig, Vikrant, 2022. "Supranational supervision," LawFin Working Paper Series 46, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    15. Buch, Claudia M. & Krause, Thomas & Tonzer, Lena, 2019. "Drivers of systemic risk: Do national and European perspectives differ?," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 160-176.
    16. Weder di Mauro, Beatrice & Faia, Ester, 2016. "Cross-Border Resolution of Global Banks: Bail in under Single Point of Entry versus Multiple Points of Entry," CEPR Discussion Papers 11171, C.E.P.R. Discussion Papers.
    17. Morrison, Alan & Lóránth, Gyöngyi, 2018. "The corporate structure of multinational banks," CEPR Discussion Papers 12688, C.E.P.R. Discussion Papers.
    18. Wolf Wagner & Jing Zeng, 2023. "Too-many-to-fail and the Design of Bailout Regimes," ECONtribute Discussion Papers Series 230, University of Bonn and University of Cologne, Germany.

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • 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
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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