Supervisory Incentives in a Banking Union
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Summary:
We explore the behavior of supervisors when a centralized agency has full power over all decisions regarding banks, but relies on local supervisors to collect the information necessary to act. This institutional design entails a principal-agent problem between the central and local supervisors if their objective functions differ. Information collection may be inferior to that under fully independent local supervisors or under centralized information collection. And this may increase risk-taking by regulated banks. Yet, a “tougher” central supervisor may increase regulatory standards. Thus, the net effect of centralization on bank risk taking depends on the balance of these two effects.
Series:
Working Paper No. 2016/186
Subject:
Balance of payments Bank supervision Banking Commercial banks Distressed institutions Financial institutions Financial regulation and supervision Financial services Investment banking Portfolio investment
English
Publication Date:
September 15, 2016
ISBN/ISSN:
9781475536751/1018-5941
Stock No:
WPIEA2016186
Pages:
50
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