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Discussion Paper Details

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Title: Cooperation in International Banking Supervision

Author(s): Cornelia Holthausen and Thomas R�nde

Publication Date: April 2005

Keyword(s): cheap talk, closure, multinational banks and supervision

Programme Area(s): Financial Economics and Industrial Organization

Abstract: 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.

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Bibliographic Reference

Holthausen, C and R�nde, T. 2005. 'Cooperation in International Banking Supervision'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4990