Multiple safety net regulators and agency problems in the EU: Is Prompt Corrective Action partly the solution?

David G. Mayes (), María Nieto () and Larry D. Wall ()
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María Nieto: Banco de España

No 819, Banco de España Working Papers from Banco de España

Abstract: This paper presents a stylized mechanism aimed at dealing with the cross border agency problems that arise in supervising and resolving cross border banking groups in the European Union (EU). The authors assume that PCA policies have been implemented by the national supervisors and explore the institutional changes needed in Europe if PCA is to be effective as an incentive compatible mechanism. The paper identifies these changes starting with enhancements in the availability of information on banking groups to supervisors. Next, the paper considers the collective decision making by supervisors with authority to make discretionary decisions within the PCA framework as soon as a bank of 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: banking supervision; European Union; Prompt Corrective Action (search for similar items in EconPapers)
JEL-codes: G28 K23 F20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-eec, nep-law and nep-reg
Date: 2008-09
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Journal Article: Multiple safety net regulators and agency problems in the EU: Is Prompt Corrective Action partly the solution? (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:bde:wpaper:0819

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