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Systemic risk, international regulation, and the limits of coordination

Gazi Kara ()

Journal of International Economics, 2016, vol. 99, issue C, 192-222

Abstract: This paper examines the incentives of national regulators to coordinate capital adequacy requirements in the presence of systemic risk in global financial markets. In a two-country model, correlated asset fire sales by banks generate systemic risk across national financial markets. Absent coordination, national regulators choose inefficiently low levels of macro-prudential regulation. Thus, symmetric countries always benefit from relinquishing their authority to a central regulator that establishes uniform regulations across countries. I also consider the separate case of asymmetric countries: while there is a limit to coordination when countries are sufficiently asymmetric in a single dimension, existence of asymmetries in multiple dimensions might actually relax this limit or even eliminate it.

Keywords: Systemic risk; Macroprudential capital requirements; International policy coordination (search for similar items in EconPapers)
JEL-codes: F36 G15 G18 G21 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Systemic Risk, International Regulation, and the Limits of Coordination (2013) Downloads
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DOI: 10.1016/j.jinteco.2015.11.007

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