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The Effects of Prudential Supervision on Bank Resiliency and Profits in a Multi-Agent Setting

Author

Listed:
  • Alexandru Monahov

    (University of Nice Sophia Antipolis, France
    GREDEG CNRS)

Abstract

This article studies the effects of prudential supervision on bank resiliency and profitability within an agent-based framework that allows us to simulate persistent crisis conditions. It focuses on the stabilizing effect of prudential supervision introduced alongside three "traditional" regulatory instruments: a norm, a market-based CDS insurance mechanism and a tax in the form of a bail-in instrument. The results show that: (i) supervision enhances the regulatory instruments’ efficiency, (ii) the regulatory norm can postpone the bank’s default, but not avoid it, (iii) the CDS mechanism only produces positive results on resiliency and profitability if the regulator supervises, and (iv) the tax bail-in instrument is the most powerful tool in the regulator’s arsenal as it potentiates profitable bank operation under long-lasting crisis conditions.

Suggested Citation

  • Alexandru Monahov, 2015. "The Effects of Prudential Supervision on Bank Resiliency and Profits in a Multi-Agent Setting," GREDEG Working Papers 2015-24, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  • Handle: RePEc:gre:wpaper:2015-24
    as

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    File URL: http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2015-24.pdf
    File Function: First version, 2015
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Prudential supervision; Banking system supervision; Financial institution regulation; Agent Based Modeling; Multi-Agent Simulation;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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