Optimal Supervisory Architecture and Financial Integration in a Banking Union

Jean-Edouard Colliard

No 1319, HEC Research Papers Series from HEC Paris

Abstract: Both in the United States and in the Euro Area, bank supervision is the joint responsibility of local and central supervisors. I study a model in which local supervisors do not internalize as many externalities as a central supervisor. Local supervisors are more lenient, but banks also have weaker incentives to hide information from them. These two forces can make a joint supervisory architecture optimal, with more weight put on centralized supervision when cross-border externalities are larger. Conversely, more centralized supervision endogenously encourages banks to integrate more cross-border. Due to this complementarity, the economy can be trapped in a suboptimal equilibrium with either too little or too much central supervision, when a superior equilibrium would be achievable.

Keywords: banking union; bank supervision; financial integration (search for similar items in EconPapers)
JEL-codes: G21 G28 L51 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2018-11-29
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Related works:
Journal Article: Optimal Supervisory Architecture and Financial Integration in a Banking Union* (2020)
Working Paper: Optimal Supervisory Architecture and Financial Integration in a Banking Union (2017)
Working Paper: Optimal Supervisory Architecture and Financial Integration in a Banking Union (2017)
Working Paper: Optimal supervisory architecture and financial integration in a banking union (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1319

DOI: 10.2139/ssrn.3292828

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