Regulatory stringency as a competitive tool for financial centres

Carlos Cañón Salazar (), Misa Tanaka () and John Thanassoulis ()
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Carlos Cañón Salazar: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Misa Tanaka: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
John Thanassoulis: Warwick Business School, University of Warwick and CEPR and UK Competition and Markets Authority

No 1098, Bank of England working papers from Bank of England

Abstract: We develop a game-theoretic model in which financial regulators compete to attract internationally mobile banks by setting the level of regulatory stringency to meet both financial stability and growth objectives. We show that competitive deregulation will not arise if the relatively growth-focused regulator becomes even more growth focused, but it becomes more likely if the relatively stability-focused regulator becomes more growth focused. We also demonstrate that domestic nonregulatory inducements to retain banks (eg tax, labour laws) create an externality on the global equilibrium of regulatory stringency chosen by financial regulators with a growth objective.

Keywords: Financial regulation; global financial markets; growth; competitiveness (search for similar items in EconPapers)
JEL-codes: F43 G18 G28 L50 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2024-12-06
New Economics Papers: this item is included in nep-fdg, nep-gth and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1098

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