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Banking Supervision in Integrated Financial Markets: Implications for the EU

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  • Stéphanie Stolz

Abstract

I analyze the optimal design of banking supervision in the presence of cross-border lending. Cross-border lending could imply that an individual bank failure in one country could trigger negative spillover effects in another country. Such cross-border contagion effects could turn out to be important in the EU because national banking problems could easily spread via the highly integrated interbank market. I show that if benevolent supervisors are accountable only to their own jurisdiction, they will not take cross-border contagion effects into account. Supervisors with such a national mandate fail to implement the optimum from a supranational perspective. In consequence, the probability of a bank failure will be inefficiently high. Against the background of this result, I argue in favor of institutionalizing an EU ”Supervisory Coordination Authority” to which national supervisors are accountable.

Suggested Citation

  • Stéphanie Stolz, 2002. "Banking Supervision in Integrated Financial Markets: Implications for the EU," CESifo Working Paper Series 812, CESifo.
    • Handle: RePEc:ces:ceswps:_812
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    References listed on IDEAS

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    Cited by:

    1. Philipp Paulus, 2006. "Brüssel, Frankfurt oder Basel - Wo muss das Problem steigender Staatsschulden in der Europäischen Währungsunion gelöst werden?," Otto-Wolff-Institut Discussion Paper Series 01/2006, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.
    2. Schüler, Martin, 2003. "Incentive Problems in Banking Supervision: The European Case," ZEW Discussion Papers 03-62, ZEW - Leibniz Centre for European Economic Research.
    3. Naďa Blahová, 2010. "The Changes within the Regulatory and Supervisory Framework of the European Union Financial Markets [Změny regulačního a dohledového rámce finančních trhů v Evropské unii]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2010(2), pages 42-51.
    4. Park, Sungmin & Kim, Young-Han, 2018. "International policy coordination for financial regime stability under cross-border externalities," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 177-188.

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