Supervising cross-border banks: theory, evidence and policy

Is the international convergence of capital adequacy regulation desirable?

Thorsten Beck, Radomir Todorov and Wolf Wagner

Economic Policy, 2013, vol. 28, issue 73, 5-44

Abstract: This paper analyses the distortions that banks' cross-border activities, such as foreign assets, deposits and equity, can introduce into regulatory interventions. We find that while each individual dimension of cross-border activities distorts the incentives of a domestic regulator, a balanced amount of cross-border activities does not necessarily cause inefficiencies, as the various distortions can offset each other. Empirical analysis using bank-level data from the recent crisis provides support to our theoretical findings. Specifically, banks with a higher share of foreign deposits and assets and a lower foreign equity share were intervened at a more fragile state, reflecting the distorted incentives of national regulators. We discuss several implications for the supervision of cross-border banks in Europe.— Thorsten Beck, Radomir Todorov and Wolf Wagner

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ecpoli:v:28:y:2013:i:73:p:5-44.

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