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Regulatory arbitrage and the e ciency of banking regulation

Pierre Boyer and Hubert Kempf ()
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Hubert Kempf: CREST; École Normale Supérieure Paris-Saclay

No 2017-06, Working Papers from Center for Research in Economics and Statistics

Abstract: We study the efficiency of banking regulation under financial integration. Banks freely choose the jurisdiction where to locate their activities and have private information about their efficiency level. Regulators non-cooperatively offer any regulatory contract that satisfies information and participation constraints of banks. We show that the unique Nash equilibrium of the regulatory game is a simple pooling contract: financial integration is characterized by the inability for regulators to dis-criminate between banks with different effciency levels. This result is driven by the endogenous restriction caused by regulatory arbitrage on the capacity of regulators to use several regulatory instruments.

Keywords: Regulatory Arbitrage; Banking regulation; Regulatory competition; Financial integration; Asymmetric information (search for similar items in EconPapers)
JEL-codes: C72 D82 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba
Date: 2017-08-10
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