Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/79769 
Year of Publication: 
2013
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2013: Wettbewerbspolitik und Regulierung in einer globalen Wirtschaftsordnung - Session: Regulation of Financial Markets No. B14-V2
Publisher: 
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft, Kiel und Hamburg
Abstract: 
This paper studies regulatory competition in the banking sector in a model where banks are heterogeneous and taxpayers come up for the losses of failing banks. Capital requirements force the weakest banks to exit the market. This gives rise to a signalling effect of capital standards, as borrowing firms anticipate the higher average quality of banks in a more strictly regulated country. In this model, regulatory competition in capital standards may lead to a `race to the top' for two different reasons. First, if the signalling effect is sufficiently strong, the overall demand for loans from the high-quality banks of the regulating country rises, even though the number of active banks in this country is reduced. Second, if governments are heavily concerned about the tax revenue losses arising from bank failures, strict capital requirements are imposed to improve the pool quality of the domestic banking sector and reduce the risk to taxpayers.
JEL: 
G21
G18
H73
Document Type: 
Conference Paper

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