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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/64847
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| Title: | | The regulator's trade-off: Bank supervision vs. minimum capital  |
| Authors: | | Buck, Florian Schliephake, Eva |
| Issue Date: | | 2012 |
| Series/Report no.: | | CESifo Working Paper: Monetary Policy and International Finance 3923 |
| Abstract: | | We develop a simple model of banking regulation with two policy instruments: minimum capital requirements and supervision of domestic banks. The regulator faces a trade-off: high capital requirements cause a drop in the banks'; profitability, while strict supervision reduces the scope of intermediation and is costly for taxpayers. We show that the expected costs of a banking crisis are minimised with a mix of both instruments. Once we allow for cross-border banking, the optimal policy is not feasible. If domestic supervisory effort is not observable, our model predicts a race to the bottom in banking regulation. Therefore, countries are better off by harmonising regulation on an international standard. |
| Subjects: | | bank regulation regulatory competition supervision and capital requirements |
| JEL: | | F36 G18 K23 L51 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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