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Multiple bank regulators and risk taking

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  • Agur, Itai

Abstract

The potential for banks to arbitrage between regulators exists both in the US, with its multiple federal banking regulators, and in Europe, due to multinational banking. This paper models multiple regulators that have an agency bias, which can give rise to a “race to the bottom”. The model is used to analyze the interaction between the regulatory equilibrium and several salient pre-crisis features: rising bank leverage; wholesale funding with asymmetric information; and increasing supervisional costs to disentangling bank asset exposures. Each of these raises bank risk taking on its own, but regulatory competition is shown to be an amplification mechanism.

Suggested Citation

  • Agur, Itai, 2013. "Multiple bank regulators and risk taking," Journal of Financial Stability, Elsevier, vol. 9(3), pages 259-268.
    • Handle: RePEc:eee:finsta:v:9:y:2013:i:3:p:259-268
    DOI: 10.1016/j.jfs.2013.04.003
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    References listed on IDEAS

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    Cited by:

    1. Haritchabalet, Carole & Lepetit, Laetitia & Spinassou, Kévin & Strobel, Frank, 2017. "Bank capital regulation: Are local or central regulators better?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 49(C), pages 103-114.
    2. Ms. Deniz O Igan & Thomas Lambert, 2019. "Bank Lobbying: Regulatory Capture and Beyond," IMF Working Papers 2019/171, International Monetary Fund.
    3. Haritchabalet, Carole & Lepetit, Laetitia & Spinassou, Kévin & Strobel, Frank, 2017. "Bank capital regulation: Are local or central regulators better?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 49(C), pages 103-114.
    4. De Chiara, Alessandro & Livio, Luca & Ponce, Jorge, 2018. "Flexible and mandatory banking supervision," Journal of Financial Stability, Elsevier, vol. 34(C), pages 86-104.
    5. Judit Temesvary, 2018. "The Role Of Regulatory Arbitrage In U.S. Banks' International Flows: Bank‐Level Evidence," Economic Inquiry, Western Economic Association International, vol. 56(4), pages 2077-2098, October.
    6. Douglas da Rosa München & Herbert Kimura, 2020. "Regulatory Banking Leverage: what do you know?," Working Papers Series 540, Central Bank of Brazil, Research Department.
    7. Josef Schroth, 2016. "Supervising Financial Regulators," Staff Working Papers 16-52, Bank of Canada.

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    More about this item

    Keywords

    Supervision; Arbitrage; Regulatory competition; Leverage; Wholesale funding;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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