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Regulatory Competition in Capital Standards with Selection Effects among Banks

Listed author(s):
  • Andreas Haufler
  • Ulf Maier

Several countries have recently introduced national capital standards exceeding the internationally coordinated Basel III rules, thus suggesting a ‘race to the top’ in capital standards. We study regulatory competition when banks are heterogeneous and give loans to firms that produce output in an integrated market. In this setting capital requirements change the pool quality of banks in each country and inflict negative externalities on neighboring jurisdictions by shifting risks to foreign taxpayers and by reducing total credit supply and output. Non-cooperatively set capital standards are higher than coordinated ones when governments care equally about bank profits, taxpayers, and consumers.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2016/wp-cesifo-2016-03/cesifo1_wp5839.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 5839.

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Date of creation: 2016
Handle: RePEc:ces:ceswps:_5839
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