## Competition Among Regulators

_IMF Working Papers, May 1, 2001_

## Source details

**Canonical URL:** [Competition Among Regulators](https://www.imf.org/en/publications/wp/issues/2016/12/30/competition-among-regulators-4107)

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- [Markdown version](/en/publications/wp/issues/2016/12/30/competition-among-regulators-4107/index.md)
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## Bibliographic details
- Authors: Robert Marquez, Giovanni Dell'Ariccia
- Published: May 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451849462.001

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

### Model and Mechanisms
- Framework: A formal model in which multiple national regulators choose regulation k non-cooperatively.
- Objectives of each regulator: stability of the domestic banking system, efficiency, and banks’ profitability.
- Externalities: Cross-border effects of national regulation create collective inefficiency under independent regulation.
- Comparative statics: Financial integration amplifies externalities and the gains from centralization; greater country homogeneity reduces the political or economic costs of losing national independence.

### Policy Implications and Recommendations
- Centralized regulation can lead to higher regulatory standards than decentralized, non-cooperative regulation.
- Policymakers in regions with high financial integration should consider institutional arrangements that internalize cross-border externalities (i.e., centralized regulatory frameworks).
- In negotiations over supranational regulatory authority, assessments should account for (a) degree of financial integration and (b) degree of homogeneity across countries, as these affect the net benefits of centralization.

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## Content in this bundle

- **Competition Among Regulators - WP/01/73**
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  - [Competition Among Regulators - WP/01/73 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2001/_wp0173.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/competition-among-regulators-4107_