Incomplete supervisory cooperation

53 Pages Posted: 7 Dec 2022

See all articles by Thorsten Beck

Thorsten Beck

City University London - The Business School; European University Institute; Centre for Economic Policy Research (CEPR)

Consuelo Silva Buston

Pontificia Universidad Católica de Chile - School of Business

Wolf Wagner

Erasmus University Rotterdam (EUR)

Date Written: July 6, 2022

Abstract

Banking supervisors frequently cooperate across countries, but cooperation only imperfectly covers the global operations of large banking groups. We show that this causes significant third-country externalities. Using hand-collected supervisory cooperation data, we document that banking groups shift lending activities and risk into third-country subsidiaries when cooperation agreements cover their operations in other countries. The implied country-level increase in the share of foreign loans is 16%. We also show that countries do not internalize third-country effects when making cooperation decisions, resulting in a 26 percentage point higher propensity to cooperate. Overall, our results highlight a need for "cooperating on cooperation".

Keywords: Supranational cooperation; cross-border banking; externalities

JEL Classification: G1, G2

Suggested Citation

Beck, Thorsten and Silva Buston, Consuelo and Wagner, Wolf, Incomplete supervisory cooperation (July 6, 2022). Available at SSRN: https://ssrn.com/abstract=4025170 or http://dx.doi.org/10.2139/ssrn.4025170

Thorsten Beck

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

European University Institute

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Consuelo Silva Buston

Pontificia Universidad Católica de Chile - School of Business ( email )

Vicuna Mackenna 4860
Santiago
Chile

Wolf Wagner (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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