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Incentive Problems in Banking Supervision: The European Case

  • Schüler, Martin
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    This paper discusses the incentive conflicts that arise in banking supervision in the EU in a principal-agent framework, where the regulator is the agent and the taxpayers is the principal. The regulatory agent in addition to maintaining financial stability (the objective of the principal) may pursue private interests. Incomplete information, insufficient accountability of the agent and lack of enforceability of compliance result in an incentive problem. A reform of the European supervisory system complemented by strengthening market discipline based on improved disclosure of both the supervisor and the banks may help to solve the European incentive problem.

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    File URL: http://econstor.eu/bitstream/10419/23996/1/dp0362.pdf
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    Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 03-62.

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    Date of creation: 2003
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    Handle: RePEc:zbw:zewdip:1492
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    1. Edward J. Kane, 1991. "Financial Regulation and Market Forces," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 127(III), pages 325-342, September.
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    9. Schüler, Martin, 2003. "How Do Banking Supervisors Deal with Europe-wide Systemic Risk?," ZEW Discussion Papers 03-03, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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    20. repec:cup:cbooks:9780521347891 is not listed on IDEAS
    21. Schüler, Martin & Schröder, Michael, 2003. "Systemic Risk in European Banking: Evidence from Bivariate GARCH Models," ZEW Discussion Papers 03-11, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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