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Cooperation in international banking supervision

Author

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  • Holthausen, Cornelia
  • Rønde, Thomas

Abstract

This paper analyzes cooperation between sovereign national authorities in the supervision and regulation of a multinational bank. We take a political economy approach to regulation and assume that supervisors maximize the welfare of their own country. The communication between the supervisors is modeled as a 'cheap talk' game. We show that: (1) unless the interests of the countries are perfectly aligned, Þrst best closure regulation cannot be implemented; (2) the more aligned the interests are, the higher is welfare; (3) the bank can allocate its investments strategically across countries to escape closure. JEL Classification: F36, G21, G28, L51

Suggested Citation

  • Holthausen, Cornelia & Rønde, Thomas, 2004. "Cooperation in international banking supervision," Working Paper Series 316, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2004316
    Note: 253388
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp316.pdf
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    References listed on IDEAS

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    1. repec:ner:ucllon:http://discovery.ucl.ac.uk/17678/ is not listed on IDEAS
    2. Robert J. Aumann & Sergiu Hart, 2003. "Long Cheap Talk," Econometrica, Econometric Society, vol. 71(6), pages 1619-1660, November.
      • Robert J. Aumann & Sergiu Hart, 2002. "Long Cheap Talk," Discussion Paper Series dp284, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem, revised Nov 2002.
    3. Cabral, Luis M. B., 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032864, December.
    4. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    5. Viral V. Acharya, 2003. "Is the International Convergence of Capital Adequacy Regulation Desirable?," Journal of Finance, American Finance Association, vol. 58(6), pages 2745-2782, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    cheap talk; closure; multinational banks; supervision;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • 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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