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Coordination Incentives in Cross-Border Macroprudential Regulation

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  • Alexis Derviz
  • Jakub Seidler

Abstract

When national financial sector regulators need to mutually harmonize macroprudential policy decisions, imperfections of cross-border information exchange may undermine fair cooperation. Attempts to overcome the effects of informational distortions by delegating macroprudential policy to a supranational body are also likely to entail welfare losses due to informational inefficiencies. We study the tradeoff between macroprudential policy autonomy and centralization by means of a signaling game of imperfect information played by two national regulators. The model concentrates on informational frictions in an environment with otherwise fully aligned preferences. We show that even in the absence of evident conflicting goals, the non-transferable nature of some regulatory information creates misreporting incentives. Reporting accuracy is a part of a broader problem of strategic advantage-seeking by the national regulators. Therefore, cross-border coordination mechanisms, centralized or not, that limit strategic behavior are preferable to those allowing its full deployment. The results are applicable to systemic risk management by international organizations, including the relevant EU institutions.

Suggested Citation

  • Alexis Derviz & Jakub Seidler, 2012. "Coordination Incentives in Cross-Border Macroprudential Regulation," Working Papers 2012/08, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2012/08
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    References listed on IDEAS

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    Cited by:

    1. Michal Skorepa, 2014. "Concurrent Capital Buffers in a Banking Group," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2013/2014, chapter 0, pages 128-136, Czech National Bank.

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    More about this item

    Keywords

    Autonomy; information; integration; macroprudential regulation; reporting.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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