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Regulatory stringency as a competitive tool for financial centres

Author

Listed:
  • Cañón Salazar, Carlos

    (Bank of England)

  • Tanaka, Misa

    (Bank of England)

  • Thanassoulis, John

    (Warwick Business School, University of Warwick and CEPR and UK Competition and Markets Authority)

Abstract

We develop a game-theoretic model in which financial regulators compete to attract internationally mobile banks by setting the level of regulatory stringency to meet both financial stability and growth objectives. We show that competitive deregulation will not arise if the relatively growth-focused regulator becomes even more growth focused, but it becomes more likely if the relatively stability-focused regulator becomes more growth focused. We also demonstrate that domestic nonregulatory inducements to retain banks (eg tax, labour laws) create an externality on the global equilibrium of regulatory stringency chosen by financial regulators with a growth objective.

Suggested Citation

  • Cañón Salazar, Carlos & Tanaka, Misa & Thanassoulis, John, 2024. "Regulatory stringency as a competitive tool for financial centres," Bank of England working papers 1098, Bank of England.
    • Handle: RePEc:boe:boeewp:1098
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2024/regulatory-stringency-as-a-competitive-tool-for-financial-centres.pdf
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    More about this item

    Keywords

    Financial regulation; global financial markets; growth; competitiveness;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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