Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/76440 
Year of Publication: 
2002
Series/Report no.: 
CESifo Working Paper No. 812
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
I analyze the optimal design of banking supervision in the presence of cross-border lending. Cross-border lending could imply that an individual bank failure in one country could trigger negative spillover effects in another country. Such cross-border contagion effects could turn out to be important in the EU because national banking problems could easily spread via the highly integrated interbank market. I show that if benevolent supervisors are accountable only to their own jurisdiction, they will not take cross-border contagion effects into account. Supervisors with such a national mandate fail to implement the optimum from a supranational perspective. In consequence, the probability of a bank failure will be inefficiently high. Against the background of this result, I argue in favor of institutionalizing an EU ”Supervisory Coordination Authority” to which national supervisors are accountable.
Subjects: 
banking supervision
systemic risk
cross-border contagion
Document Type: 
Working Paper
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