Optimal supervisory architecture and financial integration in a banking union

Jean-Edouard Colliard

No 1786, Working Paper Series from European Central Bank

Abstract: Both in the United States and in the Euro area, bank supervision is the joint responsibility of local and central/federal supervisors. I study how such a system can optimally balance the lower inspection costs of local supervisors with the ability of the central level to internalize cross-border or interstate externalities. The model predicts that centralised supervision endogenously increases market integration and cross-border externalities, further strengthening the need for centralised supervision. This complementarity implies that, for some parameterizations of the model, the economy can be trapped in a local supervision equilibrium with low supervision and integration. In such a case, the forward-looking introduction of a centralized supervisory architecture achieves a superior equilibrium. JEL Classification: D53, G21, G28, G33, G38, L51

Keywords: banking union; bank supervision; financial integration; regulatory federalism; single supervisory mechanism (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-cba
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Related works:
Journal Article: Optimal Supervisory Architecture and Financial Integration in a Banking Union* (2020)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20151786

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