Optimal Supervisory Architecture and Financial Integration in a Banking Union*

Is the international convergence of capital adequacy regulation desirable?

Jean-Edouard Colliard

Review of Finance, 2020, vol. 24, issue 1, 129-161

Abstract: Both in the USA and in the Euro area, bank supervision is the joint responsibility of local and central supervisors. I study a model in which local supervisors do not internalize as many externalities as a central supervisor. Local supervisors are more lenient, but banks also have weaker incentives to hide information from them. These two forces can make a joint supervisory architecture optimal, with more weight put on centralized supervision when cross-border externalities are larger. Conversely, more centralized supervision endogenously encourages banks to integrate more cross-border. Due to this complementarity, the economy can be trapped in a suboptimal equilibrium with either too little or too much central supervision, when a superior equilibrium would be achievable.

Keywords: Banking union; Bank supervision; Financial integration (search for similar items in EconPapers)
JEL-codes: G21 G28 L51 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (17)

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Related works:
Working Paper: Optimal Supervisory Architecture and Financial Integration in a Banking Union (2018)
Working Paper: Optimal Supervisory Architecture and Financial Integration in a Banking Union (2017)
Working Paper: Optimal Supervisory Architecture and Financial Integration in a Banking Union (2017)
Working Paper: Optimal supervisory architecture and financial integration in a banking union (2015)
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