Supervisory Incentives in a Banking Union
Elena Carletti (),
Giovanni Dell’Ariccia () and
Robert Marquez ()
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Elena Carletti: Baffi Carefin Center and Innocenzo Gasparini Institute for Economic Research, Bocconi University, 20136 Milan, Italy;
Giovanni Dell’Ariccia: Centre for Economic Policy Research, London EC1V 0DX, United Kingdom; International Monetary Fund, Washington, District of Columbia 20431;
Robert Marquez: UC Davis Graduate School of Management, University of California, Davis, Davis, California 95616
Authors registered in the RePEc Author Service: Giovanni Dell'ariccia
Management Science, 2021, vol. 67, issue 1, 455-470
Abstract:
We study the consequences for supervisors’ and banks’ behavior of a “hub-and-spokes” supervisory system where a centralized agency has authority over banks but relies on local supervisors to collect actionable information. The model entails a principal-agent problem between central and local supervisors that leads to tougher supervisory standards but less compliance on the side of the supervised banks. Centralization entails greater inspection effort by the local supervisor and less bank risk taking if the divergence in the intervention policy of the central and the local supervisors is sufficiently small, but less effort and riskier bank portfolios if the divergence is large. The model has implications for the design of supervisory frameworks within integrated economies.
Keywords: centralized bank supervision; bank risk taking; limited liability (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (8)
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https://doi.org/10.1287/mnsc.2019.3448 (application/pdf)
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Working Paper: Supervisory Incentives in a Banking Union (2016) 
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:1:p:455-470
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