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Regulatory Competition and Multi-national Banking

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  • Dag Morten Dalen
  • Trond Olsen

Abstract

This paper focuses on the consequences of cross-border banking and entry of multi-national banks (MNBs) for banking supervision and regulation. When a MNB expands internationally with subsidiaries, the MNB operates under the legislation of several countries - both the home country and the host countries. Although these countries have agreed upon minimum standards and supervisory principles, such as in the EU directives or the Basle Accords, substantial degrees of freedom are still left to the national regulators. An important issue is whether the decentralized approach to regulation of MNBs creates inefficiencies and financial instability. We show that lack of international coordination of regulation towards MNB-subsidiaries works to lower capital adequacy requirements. In equilibrium, however, regulators respond by increasing the incentives to improve asset quality, making the probability of banking failure insensitive to the decentralized nature of banking regulation. Ownership of the MNB is shown to be of importance for the outcome of regulatory competition. Finally, considering branch-organized MNBs, we derive comparative results with respect to regulatory policy and MNBs‘ preferred form of representation.

Suggested Citation

  • Dag Morten Dalen & Trond Olsen, 2003. "Regulatory Competition and Multi-national Banking," CESifo Working Paper Series 971, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_971
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    File URL: http://www.cesifo-group.de/DocDL/cesifo_wp971.pdf
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    References listed on IDEAS

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    Cited by:

    1. Holopainen, Helena, 2007. "Integration of financial supervision," Research Discussion Papers 12/2007, Bank of Finland.
    2. Agur, Itai, 2013. "Multiple bank regulators and risk taking," Journal of Financial Stability, Elsevier, vol. 9(3), pages 259-268.
    3. Juan Luis Jiménez & Javier Campos, 2004. "Efectos de la descentralización de la política de defensa de la competencia," Documentos de trabajo conjunto ULL-ULPGC 2004-09, Facultad de Ciencias Económicas de la ULPGC.
    4. Kara, Gazi Ishak, 2016. "Systemic risk, international regulation, and the limits of coordination," Journal of International Economics, Elsevier, vol. 99(C), pages 192-222.

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    Keywords

    banking regulation; multi-national banks; common-agency;

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