Regulatory competition in capital standards with selection effects among banks

Andreas Haufler and Ulf Maier

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: Several countries have recently introduced national capital standards exceeding the internationally coordinated Basel III rules, thus suggesting a `race to the top' in capital standards. We study regulatory competition when banks are heterogeneous and give loans to firms that produce output in an integrated market. In this setting capital requirements change the pool quality of banks in each country and inflict negative externalities on neighboring jurisdictions by shifting risks to foreign taxpayers and by reducing total credit supply and output. Non-cooperatively set capital standards are higher than coordinated ones when governments care equally about bank profits, taxpayers, and consumers.

Keywords: regulatory competition; capital requirements; bank heterogeneity (search for similar items in EconPapers)
JEL-codes: F36 G28 H73 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Regulatory Competition in Capital Standards with Selection Effects among Banks (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenec:27700

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