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Multiple safety net regulators and agency problems in the EU: Is Prompt Corrective Action partly the solution?

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  • Mayes, David G.
  • Nieto, María J.
  • Wall, Larry

Abstract

This paper presents a stylized mechanism aimed at dealing with the cross border agency problems that arise in supervising and resolving cross border banking groups in the European Union (EU). The authors assume that PCA policies have been implemented by the national supervisors and explore the institutional changes needed in Europe if PCA is to be effective as an incentive compatible mechanism. The paper identifies these changes starting with enhancements in the availability of information on banking groups to supervisors. Next, the paper considers the collective decision making by supervisors with authority to make discretionary decisions within the PCA framework as soon as a bank of a cross border banking group falls below the minimum capital standard. Finally, the paper analyzes the coordination measures that should be implemented if PCA requires the bank to be resolved.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 4 (2008)
Issue (Month): 3 (September)
Pages: 232-257

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Handle: RePEc:eee:finsta:v:4:y:2008:i:3:p:232-257

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Web page: http://www.elsevier.com/locate/jfstabil

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References

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  1. Charles M. Kahn & João A. C. Santos, 2001. "Allocating bank regulatory powers: lender of last resort, deposit insurance and supervision," BIS Working Papers 102, Bank for International Settlements.
  2. Llewellyn, David T. & Mayes , David G., 2003. "The role of market discipline in handling problem banks," Research Discussion Papers 21/2003, Bank of Finland.
  3. , Richmond Law & Tax (ed.), 2005. "Banking Regulators," OUP Catalogue, Oxford University Press, Oxford University Press, number 9781904501367, October.
  4. Alberto Alesina & Guido Tabellini, 2003. "Bureaucrats or Politicians?," Harvard Institute of Economic Research Working Papers 2009, Harvard - Institute of Economic Research.
  5. Rafael Repullo, 2005. "Liquidity, Risk-Taking, And The Lender Of Last Resort," Working Papers, CEMFI wp2005_0504, CEMFI.
  6. Douglas D. Evanoff & Larry D. Wall, 2002. "Subordinated debt and prompt corrective regulatory action," Working Paper, Federal Reserve Bank of Atlanta 2002-18, Federal Reserve Bank of Atlanta.
  7. Alberto Alesina & Guido Tabellini, 2005. "Why do Politicians Delegate?," Harvard Institute of Economic Research Working Papers 2079, Harvard - Institute of Economic Research.
  8. María J. Nieto & Larry D. Wall, 2007. "Preconditions for a successful implementation of supervisors' Prompt Corrective Action: Is there a case for a banking standard in the EU?," Banco de Espa�a Working Papers 0702, Banco de Espa�a.
  9. Frederic S. Mishkin, 2005. "How Big a Problem is Too Big to Fail?," NBER Working Papers 11814, National Bureau of Economic Research, Inc.
  10. Dirk Schoenmaker & Charles Goodhart, 2006. "Burden Sharing in a Banking Crisis in Europe," FMG Special Papers, Financial Markets Group sp164, Financial Markets Group.
  11. George J. Benston & George G. Kaufman, 1988. "Risk and solvency regulation of depository institutions: past policies and current options," Staff Memoranda 88-1, Federal Reserve Bank of Chicago.
  12. Andrea Sironi, 2000. "Testing for market discipline in the European banking industry: evidence from subordinated debt issues," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-40, Board of Governors of the Federal Reserve System (U.S.).
  13. Mayes, David G., 1998. "Improving Banking Supervision," Research Discussion Papers 23/1998, Bank of Finland.
  14. Robert A. Eisenbeis & George G. Kaufman, 2007. "Cross-border banking: challenges for deposit insurance and financial stability in the European Union," Working Paper, Federal Reserve Bank of Atlanta 2006-15, Federal Reserve Bank of Atlanta.
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Citations

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Cited by:
  1. Larry D. Wall, 2010. "Prudential Discipline for Financial Firms: Micro, Macro, and Market Structures," Working Papers id:3040, eSocialSciences.
  2. Gillian G.H. Garcia & Rosa M. Lastra & María J. Nieto, 2009. "Bankruptcy and reorganization procedures for cross-border banks in the EU: Towards an integrated approach to the reform of the EU safety net," Journal of Financial Regulation and Compliance, Emerald Group Publishing, Emerald Group Publishing, vol. 17(3), pages 240-276, July.
  3. George G. Kaufman, 2007. "A Program for Minimizing the Private and Public Costs of Bank Failures," NFI Policy Briefs 2007-PB-11, Indiana State University, Scott College of Business, Networks Financial Institute.
  4. David G. Mayes, 2008. "Avoiding the Next Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 9(4), pages 44-50, December.
  5. Masciandaro, Donato & Nieto, Maria J. & Quintyn, Marc, 2011. "Exploring governance of the new European Banking Authority—A case for harmonization?," Journal of Financial Stability, Elsevier, Elsevier, vol. 7(4), pages 204-214, December.
  6. Jens Hagendorff & Maria J. Nieto & Larry D. Wall, 2012. "The safety and soundness effects of bank M&A in the EU," Working Paper, Federal Reserve Bank of Atlanta 2012-13, Federal Reserve Bank of Atlanta.
  7. Maria J. Nieto & Garry J. Schinasi, 2008. "Towards an EU Framework for Safeguarding Financial Stability," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 6(3), pages 27-36, October.
  8. Pisani-Ferry, Jean & Sapir, André, 2009. "Banking Crisis Management in the EU: An Interim Assessment," Economics Papers from University Paris Dauphine 123456789/12380, Paris Dauphine University.
  9. Donato Masciandaro & Marc Quintyn, 2013. "The Evolution of Financial Supervision: the Continuing Search for the Holy Grail," SUERF 50th Anniversary Volume Chapters, SUERF - The European Money and Finance Forum.
  10. Gillian G.H.Garcia & Rosa M. Lastra & Maria J. Nieto, 2009. "Bankruptcy and reorganisation procedures for cross-border banks in the EU: Towards an integrated approach to the reform of the EU safety net," FMG Special Papers, Financial Markets Group sp186, Financial Markets Group.
  11. Hardy, Daniel C. & Nieto, Maria J., 2011. "Cross-border coordination of prudential supervision and deposit guarantees," Journal of Financial Stability, Elsevier, Elsevier, vol. 7(3), pages 155-164, August.
  12. Daniel C. Hardy & María J. Nieto, 2011. "Cross-border coordination of prudential supervision And deposit guarantees," Banco de Espa�a Working Papers 1126, Banco de Espa�a.
  13. Jens Hagendorff & María J. Nieto & Larry D. Wall, 2012. "The safety and soundness effects of bank M&As in the EU: does prudential regulation have any impact?," Banco de Espa�a Working Papers 1236, Banco de Espa�a.
  14. David G. Mayes, 2009. "Banking Crisis Resolution Policy - Lessons from Recent Experience - which elements are needed for robust and efficient crisis resolution?," CESifo Working Paper Series 2823, CESifo Group Munich.
  15. Mayes, David G, 2009. "Early intervention and prompt corrective action in Europe," Research Discussion Papers 17/2009, Bank of Finland.
  16. Marc Quintyn & Donato Masciandaro & María Nieto, 2009. "Will they Sing the Same Tune? Measuring Convergence in the New European System of Financial Supervisors," IMF Working Papers 09/142, International Monetary Fund.

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