Abstract

http://ssrn.com/abstract=539983
 
 

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Financial Liberalisation and Capital Regulation in Open Economies


Alan D. Morrison


University of Oxford - Said Business School; University of Oxford - Merton College

Lucy White


Harvard Business School - Finance Unit; Centre for Economic Policy Research (CEPR)

April 2004

Oxford Financial Research Centre Working Paper No. 2004-FE-10

Abstract:     
We model the interaction between two economies where banks exhibit both adverse selection and moral hazard and bank regulators try to resolve these problems. We find that liberalising bank capital flows between economies reduces total welfare by reducing the average size and efficiency of the banking sector. This effect can be countered by forcing international harmonisation of capital requirements across economies, a policy reminiscent of the level playing field adopted in the 1988 Basle Accord. Such a policy is good for weaker regulators whereas a laissez faire policy under which each country chooses its own capital requirement is better for the higher quality regulator. We find that imposing a level playing field among countries is globally optimal provided regulators' abilities are not too different. We also show how shocks will be transmitted differently across the two policy regimes.

Number of Pages in PDF File: 27

Keywords: Bank regulation, capital, multinational banks, exchange controls, international financial regulation, level playing field

JEL Classification: F36, G21, G28

working papers series


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Date posted: May 5, 2004  

Suggested Citation

Morrison, Alan D. and White, Lucy, Financial Liberalisation and Capital Regulation in Open Economies (April 2004). Oxford Financial Research Centre Working Paper No. 2004-FE-10. Available at SSRN: http://ssrn.com/abstract=539983 or http://dx.doi.org/10.2139/ssrn.539983

Contact Information

Alan Morrison (Contact Author)
University of Oxford - Said Business School ( email )
Department of Finance
Park End Street
Oxford OX1 1HP
United Kingdom
+44 18 6527 6343 (Phone)
+44 18 6527 6310 (Fax)
University of Oxford - Merton College
Merton Street
Oxford OX1 4JD
United Kingdom
+44 18 6527 6343 (Phone)
Lucy White
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-0645 (Phone)
617-496-3564 (Fax)
HOME PAGE: http://pine.hbs.edu/external/facPersonalShow.do?email=lwhite
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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