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Regulatory Competition In Capital Standards with Selection Effects among Banks

Listed author(s):
  • Maier, Ulf

    (LMU Munich)

Registered author(s):

    Several countries have recently introduced national capital standards exceeding the internationally coordinated Basel III rules, which is inconsistent with the \'race to the bottom\' in capital standards found in the literature. 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 and a \'race to the top\' occurs when governments care equally about bank profits, taxpayers, and consumers.

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    File URL: https://rationality-and-competition.de/wp-content/uploads/discussion_paper/7.pdf
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    Paper provided by CRC TRR 190 Rationality and Competition in its series Rationality and Competition Discussion Paper Series with number 7.

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    Date of creation: 25 Mar 2017
    Handle: RePEc:rco:dpaper:7
    Contact details of provider: Web page: https://rationality-and-competition.de

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