The Mutual Interdependence between Regulation and the Representative Form of Multinational Banks

38 Pages Posted: 23 Jan 2018

Date Written: November 15, 2017

Abstract

Multinational bank activity is known to generate spillover effects between countries. The size of these spillover effects inter alia depends on the choice of multinational banks' representative form and on regulation. The present paper studies the interdependence between these two factors. We argue that regulators have a preference on representative forms and provide incentives for banks to choose representative forms in their interest by adapting the strictness of regulation. It is shown that competition between national regulators leads to a "race to the top" in regulatory standards. Monitoring levels set by national regulators are larger than efficient monitoring levels. Additionally, a banking-union scenario is considered, where national regulators are in charge of information collection but a central regulator decides on regulation. Monitoring by national regulators decreases if a central regulator is introduced. However, total welfare can still be increased by a further decrease in monitoring levels.

Keywords: regulatory competition, multinational banks, banking union, race to the top, regulatory arbitrage

JEL Classification: G21, G28, D62, F23

Suggested Citation

Näther, Maria, The Mutual Interdependence between Regulation and the Representative Form of Multinational Banks (November 15, 2017). Available at SSRN: https://ssrn.com/abstract=3102906 or http://dx.doi.org/10.2139/ssrn.3102906

Maria Näther (Contact Author)

University of Leipzig ( email )

Grimmaische Straße 12
Leipzig, 04109
Germany

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