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Cooperation in International Banking Supervision

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  • Cornelia Holthausen

    (European Central Bank)

  • Thomas Rønde

    (Institute of Economics, University of Copenhagen)

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, first 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.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2004-02.

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Length: 42 pages
Date of creation: Dec 2003
Date of revision:
Handle: RePEc:kud:kuieci:2004-02

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

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References

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  6. Holthausen, Cornelia & Rønde, Thomas, 2004. "Cooperation in international banking supervision," Working Paper Series 0316, European Central Bank.
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  19. George J. Mailath & Loretta J. Mester, 1993. "A positive analysis of bank closure," Working Papers 94-2, Federal Reserve Bank of Philadelphia.
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  23. 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.
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  25. Luís M. B. Cabral, 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032864, December.
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