Bank capital regulation: are local or central regulators better?

Carole Haritchabalet, Laetitia Lepetit, Kévin Spinassou, Frank Strobel

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)
168 Downloads (Pure)

Abstract

Using a simple two-region model where local or central regulators set bank capital requirements as risk sensitive capital or leverage ratios, we demonstrate the importance of capital requirements being set centrally when cross-region spillovers are large and local regulators suffer from substantial regulatory capture. We show that local regulators may want to surrender regulatory power only when spillover effects are large but the degree of supervisory capture is relatively small, and that bank capital regulation at central rather than local levels is more beneficial the larger the impact of systemic risk and the more asymmetric is regulatory capture at the local level.
Original languageEnglish
Pages (from-to)103-114
JournalJournal of International Financial Markets, Institutions and Money
Volume49
Early online date28 Feb 2017
DOIs
Publication statusPublished - Jul 2017

Keywords

  • bank regulation
  • capital requirement
  • spillover
  • regulatory capture
  • financial architecture

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