 Endogenous bank regulation and supervision: Long term implicationsOğuz Kaan Karakoyun, Mustafa Karakaplan and Bilin Neyaptı Journal of Financial Stability, 2024, vol. 70, issue C Abstract: The role of bank regulation and supervision (RS) on financial stability and welfare has been subject to ongoing research, especially since the Great Recession. RS is expected to help eliminate the adverse selection and moral hazard problems that are abundant in financial transactions. In this paper, we present a general equilibrium model that is augmented by either a bank regulatory and supervisory agent who chooses the level of RS by maximizing bank profits, or by a macroprudential agent who minimizes non-performing loans (NPL). We compare the long-term outcomes of these scenarios and show that minimizing NPL is feasible for a larger and economically more viable range of parameter values than the alternatives. Moreover, for a comparable set of parameter combinations, the optimal choice of RS that minimizes NPL leads to both higher levels of steady state income and lower interest spreads as compared to RS that maximizes bank profits. Keywords: Bank Regulation and Supervision; Macroprudential Agent; General Equilibrium Model; Non-Performing Loans (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:70:y:2024:i:c:s1572308924000019 DOI: 10.1016/j.jfs.2024.101216 Access Statistics for this article Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman More articles in Journal of Financial Stability from Elsevier |
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