 Global lending conditions and international coordination of financial regulation policiesJournal of Financial Stability, 2023, vol. 69, issue C Abstract: Using a model of strategic interactions between two countries, I investigate the gains to international coordination of financial regulation policies, and how these gains depend on global lending conditions. When one region – the core – sets global lending conditions, I show that coordinating regulatory policies makes the two regions better-off relative to the case of no cooperation. Global lending conditions set by the core are typically sub-optimal for the other region – the periphery –. To reduce this cost, the periphery can tighten its regulatory policy. Yet, in doing so, it fails to internalise a cross-border externality: when the periphery tightens its regulatory policy, agents in the core reduce cross-border borrowing, which tightens global lending conditions and hurts the periphery. The cooperative equilibrium can improve on this outcome. Both regions take into account the cross-border externality, leading to larger cross-border borrowing and less sub-optimal lending conditions for the periphery. Keywords: Regulatory policy; Global lending conditions; Cross-border borrowing; Cooperation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:69:y:2023:i:c:s1572308923000840 DOI: 10.1016/j.jfs.2023.101184 Access Statistics for this article Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman More articles in Journal of Financial Stability from Elsevier |
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