Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/154219 
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper No. 1786
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
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.
Subjects: 
bank supervision
banking union
Financial integration
regulatory federalism
single supervisory mechanism
JEL: 
D53
G21
G28
G33
G38
L51
ISBN: 
978-92-899-1599-1
Document Type: 
Working Paper

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