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Is the International Convergence of Capital Adequacy Regulation Desirable? Author info | Abstract | Publisher info | Download info | Related research | Statistics Acharya, Viral V
The merit of having international convergence of bank capital requirements in the presence of divergent closure policies of different central banks is examined. While the privately optimal level of bank capital decreases with regulatory forbearance (they are strategic substitutes), the socially optimal level of bank capital increases with regulatory forbearance (they are strategic complements). Hence, in optimal regulatory design, the level of minimum bank capital requirement increases with the forbearance in central bank closure policy. The lack of such linkage leads to a spillover from more forbearing to less forbearing economies and reduces the competitive advantage of banks in less forbearing economies. Linking the central bank’s forbearance to its alignment with domestic bankowners, it is shown that in equilibrium a regression towards the worst closure policy may result: the central banks of initially less forbearing economies have to adopt greater forbearance as well.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
3253.
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Date of creation: Mar 2002Date of revision:
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Keywords: bank regulation capital adequacy closure policy financial integration international spillovers risk-shifting Other versions of this item:
Find related papers by JEL classification: D62 - Microeconomics - - Welfare Economics - - - Externalities E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
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