Competition Among Regulators

By Robert Marquez, Giovanni Dell'Ariccia

May 1, 2001

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Format: Chicago

Robert Marquez, and Giovanni Dell'Ariccia. Competition Among Regulators, (USA: International Monetary Fund, 2001) accessed October 6, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper shows that competition among regulators reduces regulatory standards relative to a centralized solution. It suggests that a central regulator is more likely to emerge for homogeneous and financially integrated countries. The paper proves these results in a model where regulators concerned with their banking system’s stability and efficiency and with their banks’ profitability set their regulatory policy non-cooperatively. Externalities in bank regulation make the independent solution collectively inefficient. These externalities and the benefits of centralized regulation increase with financial integration, while the costs associated with the loss of independence decrease with the homogeneity of the countries involved.

Subject: Bank soundness, Banking, Commercial banks, Competition, Financial institutions, Financial integration, Financial markets, Financial sector policy and analysis, Foreign banks

Keywords: Bank regulator, Bank soundness, Banking regulation, Banking system, Benevolent regulator, Central regulator, Centralized regulator, Commercial banks, Competition, Equilibrium regulation level, Europe, Externalities, Financial integration, Foreign banks, Independent regulator, National regulator, Regulation k, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/073
Stock No:

WPIEA0732001
ISBN:

9781451849462
ISSN:

1018-5941

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