Regulatory Competition and Bank Risk Taking

Itai Agur ()

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: How damaging is competition between bank regulators? This paper develops a model in which both banks' risk profile and their access to wholesale funding are endogenous. Regulators weigh not only welfare, but also the number of banks under their supervision. Simulations indicate that the gains from consolidating US regulation are moderate, roughly 0.5-1% of GDP. But retaining multiple regulators implies a choice for a financial system that is both more profitable and more fragile. The paper also shows how complex balance sheet items give rise to a gradual rise in bank risk, followed by a sudden interbank crisis.          Â

Keywords: regulatory competition; arbitrage; bank risk; liquidity risk; interbank   market.           (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-fmk, nep-reg and nep-rmg
Date: 2009-07
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Related works:
Working Paper: Regulatory Competition and Bank Risk Taking (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:dnb:dnbwpp:213

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