Multinational Banks and Financial Stability

120 Pages Posted: 5 Jan 2020 Last revised: 3 Dec 2021

See all articles by Christopher Clayton

Christopher Clayton

Yale School of Management

Andreas Schaab

Columbia Business School

Date Written: October 14, 2021

Abstract

We study the scope for international cooperation in macroprudential policies. Multinational banks contribute to and are affected by fire sales in countries they operate in. National governments setting quantity regulations non-cooperatively fail to achieve the globally efficient outcome, under-regulating domestic banks and over-regulating foreign banks. Surprisingly, non-cooperative national governments using Pigouvian taxation can achieve the global optimum. Intuitively, this occurs because governments internalize the business value of foreign banks through the tax revenue collected. Our theory provides a unified framework to think about international bank regulations and yields concrete insights with the potential to improve on the current policy stance.

Keywords: International banking, policy coordination, macroprudential regulation, capital controls, fire sales

JEL Classification: F42, G28, D62

Suggested Citation

Clayton, Christopher and Schaab, Andreas, Multinational Banks and Financial Stability (October 14, 2021). Available at SSRN: https://ssrn.com/abstract=3512148 or http://dx.doi.org/10.2139/ssrn.3512148

Christopher Clayton (Contact Author)

Yale School of Management ( email )

Cambridge, MA
United States

Andreas Schaab

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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