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Competition Among Regulators

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  • Robert Marquez
  • Giovanni Dell'Ariccia

Abstract

This paper shows that competition among regulators reduces regulatory standards relative to a centralized solution. It suggests that a central regulator is more likely to emerge for homogeneous and financially integrated countries. The paper proves these results in a model where regulators concerned with their banking system’s stability and efficiency and with their banks’ profitability set their regulatory policy non-cooperatively. Externalities in bank regulation make the independent solution collectively inefficient. These externalities and the benefits of centralized regulation increase with financial integration, while the costs associated with the loss of independence decrease with the homogeneity of the countries involved.

Suggested Citation

  • Robert Marquez & Giovanni Dell'Ariccia, 2001. "Competition Among Regulators," IMF Working Papers 01/73, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:01/73
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    Cited by:

    1. Holger Wolf, 2008. "Rethinking banking supervision in the EU," International Economics and Economic Policy, Springer, vol. 4(4), pages 357-361, February.
    2. Daniel C. Hardy & María J. Nieto, 2011. "Cross-border coordination of prudential supervision And deposit guarantees," Working Papers 1126, Banco de España;Working Papers Homepage.
    3. Elisabetta Montanaro, 2016. "The process towards centralisation of the European financial supervisory architecture: The case of the Banking Union," PSL Quarterly Review, Economia civile, vol. 69(277), pages 135-172.
    4. Cornelia Holthausen & Thomas Rønde, 2003. "Cooperation in International Banking Supervision," CIE Discussion Papers 2004-02, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    5. Viral V. Acharya, 2003. "Is the International Convergence of Capital Adequacy Regulation Desirable?," Journal of Finance, American Finance Association, vol. 58(6), pages 2745-2782, December.
    6. D'Hulster, Katia, 2011. "Cross border banking supervision : incentive conflicts in supervisory information sharing between home and host supervisors," Policy Research Working Paper Series 5871, The World Bank.
    7. Robert A. Eisenbeis & George G. Kaufman, 2007. "Cross-border banking: challenges for deposit insurance and financial stability in the European Union," FRB Atlanta Working Paper 2006-15, Federal Reserve Bank of Atlanta.
    8. Martin Cihak & Jörg Decressin, 2007. "The Case for a European Banking Charter," IMF Working Papers 07/173, International Monetary Fund.
    9. Eisenbeis, Robert A. & Kaufman, George G., 2008. "Cross-border banking and financial stability in the EU," Journal of Financial Stability, Elsevier, vol. 4(3), pages 168-204, September.
    10. Schüler, Martin, 2003. "Incentive Problems in Banking Supervision: The European Case," ZEW Discussion Papers 03-62, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    11. International Monetary Fund, 2006. "Regulatory Capture in Banking," IMF Working Papers 06/34, International Monetary Fund.
    12. International Monetary Fund, 2009. "A European Mandate for Financial Sector Supervisors in the EU," IMF Working Papers 09/5, International Monetary Fund.
    13. International Monetary Fund, 2008. "Cross-Border Coordination of Prudential Supervision and Deposit Guarantees," IMF Working Papers 08/283, International Monetary Fund.
    14. Hardy, Daniel C. & Nieto, Maria J., 2011. "Cross-border coordination of prudential supervision and deposit guarantees," Journal of Financial Stability, Elsevier, vol. 7(3), pages 155-164, August.

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