Cooperation in International Banking Supervision
48 Pages Posted: 9 Aug 2005
There are 2 versions of this paper
Cooperation in International Banking Supervision
Date Written: April 2005
Abstract
This paper analyzes cooperation among national supervisors in the decision to close a multinational bank. The supervisors are asymmetrically informed and exchange information through 'cheap talk'. It is assumed that they consider domestic welfare only. We show that: (1) the supervisors will commit mistakes both of 'type I' and 'type II' in the closure decision; (2) the more aligned national interests are, the higher is welfare resulting from the closure decision; (3) the bank can allocate its investments strategically to escape closure; (4) allocating the decision right to an uninformed supranational supervisor can improve closure regulation, especially when interests are very disaligned.
Keywords: Multinational banks, supervision, closure, cheap talk
JEL Classification: F36, G21, G28, L51
Suggested Citation: Suggested Citation
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