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Multiple safety net regulators and agency problems in the EU: Is Prompt Corrective Action partly the solution?

  • David G. Mayes

    ()

    (Bank of Finland)

  • María J. Nieto

    ()

    (Banco de España)

  • Larry Wall

    ()

    (Federal Reserve Bank of Atlanta)

This paper presents a stylized mechanism aimed at dealing with the cross border agency problems that arise in supervising and resolving cross border banking groups in the European Union (EU). The authors assume that PCA policies have been implemented by the national supervisors and explore the institutional changes needed in Europe if PCA is to be effective as an incentive compatible mechanism. The paper identifies these changes starting with enhancements in the availability of information on banking groups to supervisors. Next, the paper considers the collective decision making by supervisors with authority to make discretionary decisions within the PCA framework as soon as a bank of a cross border banking group falls below the minimum capital standard. Finally, the paper analyzes the coordination measures that should be implemented if PCA requires the bank to be resolved.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/08/Fic/dt0819e.pdf
File Function: First version, September 2008
Download Restriction: no

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0819.

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Length: 34 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:bde:wpaper:0819
Contact details of provider: Web page: http://www.bde.es/Email:


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  1. Alesina, Alberto F & Tabellini, Guido, 2004. "Bureaucrats or Politicians?," CEPR Discussion Papers 4252, C.E.P.R. Discussion Papers.
  2. Charles M. Kahn & João A. C. Santos, 2001. "Allocating bank regulatory powers: lender of last resort, deposit insurance and supervision," BIS Working Papers 102, Bank for International Settlements.
  3. Rafael Repullo, 2005. "Liquidity, Risk-Taking, And The Lender Of Last Resort," Working Papers wp2005_0504, CEMFI.
  4. Alberto Alesina & Guido Tabellini, 2005. "Why do Politicians Delegate?," Levine's Bibliography 784828000000000470, UCLA Department of Economics.
  5. Larry Wall & Maria Nieto, 2006. "Precondition for a Successful Implementation of Supervisors' Primpt Corrective Action: Is There a Case for a Banking Standard in the EU?," FMG Special Papers sp165, Financial Markets Group.
  6. Douglas D. Evanoff & Larry D. Wall, 2002. "Subordinated debt and prompt corrective regulatory action," Working Paper 2002-18, Federal Reserve Bank of Atlanta.
  7. Robert A. Eisenbeis & George G. Kaufman, 2007. "Cross-border banking: challenges for deposit insurance and financial stability in the European Union," Working Paper 2006-15, Federal Reserve Bank of Atlanta.
  8. , Richmond Law & Tax (ed.), 2005. "Banking Regulators," OUP Catalogue, Oxford University Press, number 9781904501367.
  9. Dirk Schoenmaker & Charles Goodhart, 2006. "Burden Sharing in a Banking Crisis in Europe," FMG Special Papers sp164, Financial Markets Group.
  10. Llewellyn, David T. & Mayes , David G., 2003. "The role of market discipline in handling problem banks," Research Discussion Papers 21/2003, Bank of Finland.
  11. Sironi, Andrea, 2003. " Testing for Market Discipline in the European Banking Industry: Evidence from Subordinated Debt Issues," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(3), pages 443-72, June.
  12. Mayes, David G., 1998. "Improving Banking Supervision," Research Discussion Papers 23/1998, Bank of Finland.
  13. Frederic S. Mishkin, 2005. "How Big a Problem is Too Big to Fail?," NBER Working Papers 11814, National Bureau of Economic Research, Inc.
  14. George J. Benston & George G. Kaufman, 1988. "Risk and solvency regulation of depository institutions: past policies and current options," Staff Memoranda 88-1, Federal Reserve Bank of Chicago.
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