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Cooperation in International Banking Supervision

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Author Info
Holthausen, Cornelia
Rønde, Thomas
Abstract

This paper analyses cooperation among national supervisors in the decision to close a multinational bank. The supervisors are asymmetrically informed and exchange information through ’cheap talk’. It is assumed that they consider domestic welfare only. We show that: (1) the supervisors will commit mistakes both of ’type I’ and ’type II’ in the closure decision; (2) the more aligned national interests are, the higher is welfare resulting from the closure decision; (3) the bank can allocate its investments strategically to escape closure; (4) allocating the decision right to an uninformed supranational supervisor can improve closure regulation, especially when interests are very disaligned.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4990.

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Date of creation: Apr 2005
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Handle: RePEc:cpr:ceprdp:4990

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Related research
Keywords: cheap talk; closure; multinational banks; supervision;

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Find related papers by JEL classification:
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository 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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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Acharya, Sankarshan & Dreyfus, Jean-Francois, 1989. " Optimal Bank Reorganization Policies and the Pricing of Federal Deposit Insurance," Journal of Finance, American Finance Association, vol. 44(5), pages 1313-33, December. [Downloadable!] (restricted)
  2. Robert J. Aumann & Sergiu Hart, 2003. "Long Cheap Talk," Econometrica, Econometric Society, vol. 71(6), pages 1619-1660, November. [Downloadable!] (restricted)
    Other versions:
    • Robert J. Aumann & Sergiu Hart, 2002. "Long Cheap Talk," Discussion Paper Series dp284, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem, revised Nov 2002. [Downloadable!]
  3. Calzolari, Giacomo & Lóránth, Gyöngyi, 2004. "Regulation of Multinational banks: A Theoretical Inquiry," CEPR Discussion Papers 4232, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Cornelia Holthausen & Thomas R¯nde, 2002. "Regulating Access to International Large-Value Payment Systems," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(5), pages 1561-1586.
  5. Agnes Belaisch & Laura E. Kodres & Joaquim Vieira Ferreira Levy & Angel J. Ubide, . "Euro-Area Banking at the Crossroads," IMF Working Papers 01/28, International Monetary Fund. [Downloadable!]
  6. Fries, Steven & Mella-Barral, Pierre & Perraudin, William, 1997. "Optimal bank reorganization and the fair pricing of deposit guarantees," Journal of Banking & Finance, Elsevier, vol. 21(4), pages 441-468, April. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
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  8. Jacob Glazer & Ariel Rubinstein, 2004. "On Optimal Rules of Persuasion," Econometrica, Econometric Society, vol. 72(6), pages 1715-1736, November. [Downloadable!] (restricted)
  9. 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.
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  10. Mailath George J. & Mester Loretta J., 1994. "A Positive Analysis of Bank Closure," Journal of Financial Intermediation, Elsevier, vol. 3(3), pages 272-299, June. [Downloadable!] (restricted)
    Other versions:
  11. Cornelia Holthausen & Thomas Rønde, 2004. "Cooperation in international banking supervision," Working Paper Series 316, European Central Bank. [Downloadable!]
  12. Milton Harris & Artur Raviv, 2005. "Allocation of Decision-making Authority," Review of Finance, Springer, vol. 9(3), pages 353-383, 09. [Downloadable!] (restricted)
    Other versions:
  13. Krishna, Vijay & Morgan, John, 2004. "The art of conversation: eliciting information from experts through multi-stage communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 147-179, August. [Downloadable!] (restricted)
  14. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November. [Downloadable!] (restricted)
  15. Nahum D. Melumad & Toshiyuki Shibano, 1991. "Communication in Settings with No. Transfers," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 173-198, Summer. [Downloadable!] (restricted)
  16. Dessein, Wouter, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Blackwell Publishing, vol. 69(4), pages 811-38, October.
  17. Jehiel, Philippe & Moldovanu, Benny, 2001. "Efficient Design with Interdependent Valuations," Econometrica, Econometric Society, vol. 69(5), pages 1237-59, September.
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  18. Dell'Ariccia, Giovanni & Marquez, Robert, 2006. "Competition among regulators and credit market integration," Journal of Financial Economics, Elsevier, vol. 79(2), pages 401-430, February. [Downloadable!] (restricted)
  19. Rafael Repullo, 2001. "A model of takeovers of foreign banks," Spanish Economic Review, Springer, vol. 3(1), pages 1-21. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Holopainen, Helena, 2007. "Integration of financial supervision," Research Discussion Papers 12/2007, Bank of Finland. [Downloadable!]
  2. Daniel C. L. Hardy, 2009. "A European Mandate for Financial Sector Supervisors in the EU," IMF Working Papers 09/5, International Monetary Fund. [Downloadable!]
  3. Helge Berger & Carsten Hefeker, 2008. "Does financial integration make banks more vulnerable? Regulation, foreign owned banks, and the lender-of-last resort," International Economics and Economic Policy, Springer, vol. 4(4), pages 371-393, February. [Downloadable!] (restricted)
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