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Flexible and mandatory banking supervision

Alessandro De Chiara, Luca Livio () and Jorge Ponce ()

Journal of Financial Stability, 2018, vol. 34, issue C, 86-104

Abstract: The implementation of tighter regulation and more powerful supervision may impose large social costs due to the strong reliance on supervisory information that requires direct assessment by a supervisor (i.e. Mandatory Supervision). We show that by introducing a Flexible Supervision contract, which is designed to be chosen by those banks that have incentives to capture the supervisor and allows them to bypass Mandatory Supervision, the most efficient regulation under asymmetric information may be implemented. Benevolent regulators should introduce Flexible Supervision regimes for the less risky, more capitalized and transparent banks in addition to the traditional Mandatory Supervision regime.

Keywords: Banking supervision; Regulatory capture (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2018
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Related works:
Working Paper: Flexible and mandatory banking supervision (2018)
Working Paper: Flexible and Mandatory Banking Supervision (2016) Downloads
Working Paper: Flexible and Mandatory Banking Supervision (2016) Downloads
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