Reputational contagion and optimal regulatory forbearance

Alan D. Morrison and Lucy White

No 1196, Working Paper Series from European Central Bank

Abstract: This paper examines common regulation as cause of interbank contagion. Studies based on the correlation of bank assets and the extent of interbank lending may underestimate the likelihood of contagion because they do not incorporate the fact that banks have a common regulator. In our model, the failure of one bank can undermine the public's confidence in the competence of the banking regulator, and hence in other banks chartered by the same regulator. Thus depositors may withdraw funds from their, unconnected, banks. The optimal regulatory response to this JEL Classification: G21, G28

Keywords: bank regulation; contagion; reputation (search for similar items in EconPapers)
Date: 2010-05
New Economics Papers: this item is included in nep-ban and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1196.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20101196

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().