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Cooperation in international banking supervision

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  • Holthausen, Cornelia
  • Rønde, Thomas

Abstract

This paper analyzes cooperation between sovereign national authorities in the supervision and regulation of a multinational bank. We take a political economy approach to regulation and assume that supervisors maximize the welfare of their own country. The communication between the supervisors is modeled as a 'cheap talk' game. We show that: (1) unless the interests of the countries are perfectly aligned, Þrst best closure regulation cannot be implemented; (2) the more aligned the interests are, the higher is welfare; (3) the bank can allocate its investments strategically across countries to escape closure. JEL Classification: F36, G21, G28, L51

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0316.

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Date of creation: Mar 2004
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Handle: RePEc:ecb:ecbwps:20040316

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

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References

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  1. Calzolari, Giacomo & Loranth, Gyongyi, 2005. "Regulation of multinational banks: a theoretical inquiry," Working Paper Series, European Central Bank 0431, European Central Bank.
  2. Jehiel, Phillipe & Moldovanu, Benny, 1998. "Efficient Design with Interdependent Valuations," Sonderforschungsbereich 504 Publications 98-22, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  3. Holthausen, Cornelia & Rønde, Thomas, 2004. "Cooperation in international banking supervision," Working Paper Series, European Central Bank 0316, European Central Bank.
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  8. Giacomo Calzolari & Gyongyi Loranth, 2001. "On the Regulation of Multinational Banks," Rivista di Politica Economica, SIPI Spa, SIPI Spa, vol. 91(4), pages 297-, April-May.
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  17. Agnes Belaisch & Joaquim Vieira Ferreira Levy & Laura E. Kodres & Angel J. Ubide, 2001. "Euro-Area Banking At the Crossroads," IMF Working Papers 01/28, International Monetary Fund.
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  20. Jacob Glazer & Ariel Rubinstein, 2004. "On Optimal Rules of Persuasion," Econometrica, Econometric Society, Econometric Society, vol. 72(6), pages 1715-1736, November.
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  24. Dell'Ariccia, Giovanni & Marquez, Robert, 2006. "Competition among regulators and credit market integration," Journal of Financial Economics, Elsevier, Elsevier, vol. 79(2), pages 401-430, February.
  25. Cornelia Holthausen & Thomas R¯nde, 2002. "Regulating Access to International Large-Value Payment Systems," Review of Financial Studies, Society for Financial Studies, vol. 15(5), pages 1561-1586.
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