Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149666
Authors: 
Haufler, Andreas
Maier, Ulf
Year of Publication: 
2017
Series/Report no.: 
Discussion Paper 7
Abstract: 
Several countries have recently introduced national capital standards exceeding the internationally coordinated Basel III rules, which is inconsistent with the 'race to the bottom' in capital standards found in the literature. We study regulatory competition when banks are heterogeneous and give loans to firms that produce output in an integrated market. In this setting capital requirements change the pool quality of banks in each country and inflict negative externalities on neighboring jurisdictions by shifting risks to foreign taxpayers and by reducing total credit supply and output. Non-cooperatively set capital standards are higher than coordinated ones and a 'race to the top' occurs when governments care equally about bank profits, taxpayers, and consumers.
Subjects: 
regulatory competition
capital requirements
bank heterogeneity
JEL: 
G28
F36
H73
Document Type: 
Working Paper

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