Systemic risk, international regulation, and the limits of coordination
Gazi Kara ()
Journal of International Economics, 2016, vol. 99, issue C, 192-222
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)
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Working Paper: Systemic Risk, International Regulation, and the Limits of Coordination (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:99:y:2016:i:c:p:192-222
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