Multiple Safety Net Regulators and Agency Problems in the EU: Is Prompt Corrective Action Partly the Solution?

This paper discusses the institutional changes needed in Europe if prompt corrective action (PCA) is to be effective in supervising and resolving cross-border banking groups. The paper identifies these changes starting with enhancements in the availability of information on banking groups' financial condition to prudential supervisors. Next, the paper considers the collective decision making by prudential supervisors with authority to make discretionary decisions within the PCA framework as soon as a bank in a cross-border banking group falls below the minimum capital standard. Finally, the paper analyzes the coordination measures that should be implemented if PCA requires the bank to be resolved.

Keywords: bank supervision, prompt corrective action, European Union

JEL Classification: G21, K23, F23

Suggested Citation: Suggested Citation

Mayes, David G. and Nieto, Maria J. and Wall, Larry D., Multiple Safety Net Regulators and Agency Problems in the EU: Is Prompt Corrective Action Partly the Solution? (May 2007). FRB of Atlanta Working Paper No. 2007-9, Bank of Finland Research Discussion Paper No. 7/2007, Banco de Espana Working Paper No. 0819, Available at SSRN: https://ssrn.com/abstract=988766 or http://dx.doi.org/10.2139/ssrn.988766