DP4990 Cooperation in International Banking Supervision
|Author(s):||Cornelia Holthausen, Thomas Rønde|
|Publication Date:||April 2005|
|Keyword(s):||cheap talk, closure, multinational banks, supervision|
|JEL(s):||F36, G21, G28, L51|
|Programme Areas:||Financial Economics, Industrial Organization|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4990|
This paper analyses cooperation among national supervisors in the decision to close a multinational bank. The supervisors are asymmetrically informed and exchange information through ’cheap talk’. It is assumed that they consider domestic welfare only. We show that: (1) the supervisors will commit mistakes both of ’type I’ and ’type II’ in the closure decision; (2) the more aligned national interests are, the higher is welfare resulting from the closure decision; (3) the bank can allocate its investments strategically to escape closure; (4) allocating the decision right to an uninformed supranational supervisor can improve closure regulation, especially when interests are very disaligned.