Multinational banks: Supranational resolution regimes and the importance of capital regulation

Maier, Ulf (July 2016): Multinational banks: Supranational resolution regimes and the importance of capital regulation. Discussion Papers in Economics 2016-10

Abstract

The lack of coordination in the resolution of multinational banks has led to demands for the increased centralization of resolution regimes. However, as this paper argues, the anticipation of resolution procedures affects the incentives of host countries to impose capital standards on their resident banks. Critically, it is shown that overall welfare can even be decreased by introducing a centralized resolution regime without fully centralizing capital requirements. As, in the aftermath of the financial crisis, only countries that are not part of a supranational resolution regime unilaterally and significantly increased the capital requirements for their largest resident banks, this paper can help to understand and study the heterogeneity of the observed regulatory approaches.

• Item Type: Paper
• Keywords: regulatory competition, multinational banks, capital requirements, bank supervision
• Faculties: Economics; Economics > Munich Discussion Papers in Economics
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: G21, G18, G33, F36, H73
• Language: English

References

Acharya, S., and Dreyfus, J.F. (1988). Optimal bank reorganization policies and the pricing of federal deposit insurance. Journal of Finance 44, 1313-1334.

Acharya, V. (2003). Is the international convergence of capital adequacy regulation desirable? Journal of Finance 58, 2745-2781.

Aghion, P., Bolton, P., Fries, S. (1999). Optimal design of bank bailouts: The case of transition economies. Journal of Institutional and Theoretical Economics 155, 51-70.

Allen, F., Beck, T., Carletti, E., Lane, P.R., Schoenmaker, D., Wagner, W. (2011). Cross-Border Banking in Europe: Implications for Financial Stability and Macroeconomic Policies. CEPR Report. Center for Economic Policy Research.

Anginer, D., Cerutti, E. and Martinez Peria, M.S. (2016). Foreign bank subsidiaries' default risk during the global crisis. What factors help insulate affiliates from their parents? Journal of Financial Intermediation, forthcoming.

Basel Committee on Banking Supervision, 2014. Regulatory Consistency Assessment Programme (RCAP) - Assessment of Basel III regulations - European Union. Bank for International Settlements.

Beck, T., Radomir, T., Wagner, W. (2013). Supervising cross-border banks: theory, evidence and policy. Economic Policy 73, 5-44.

Beck, T., Wagner, W. (2016). Supranational supervision - How much and for whom. International Journal of Central Banking 12, 221-268.

Benediktsdottir, S., Danielsson, J., Zoega, G. (2011). Lessons from a collapse of a financial system. Economic Policy 66, 183-235.

Bryant, J. (1980). A model of reserves, bank runs, and deposit insurance. Journal of Banking and Finance 4, 335-344. Calzolari, G., Loranth, G. (2011). Regulation of multinational banks a theoretical inquiry. Journal of Financial Intermediation 20, 178-198.

Cetorelli, N., Goldberg, L.S. (2012). Banking globalization and monetary transmission. Journal of Finance 67, 1811-1843. 30

Chan, Y.S., Greenbaum, S.I., Thakor, A.V. (1992). Is fairly priced deposit insurance possible? Journal of Finance 47, 227-245.

Chor, D., Manova, K. (2012). Off the cliff and back? Credit conditions and international trade during the global financial crisis. Journal of International Eco- nomics 87, 117-133.

Claessens, S., Herring, D., Schoenmaker, D. (2010). A safer world financial system: Improving the resolution of systemic institutions. 12th Geneva Report on the World Economy. International Center for Monetary and Banking Studies, London.

De Haas, R., Van Horen, N. (2012). International shock transmission after the Lehmann Brothers collapse: Evidence from syndicated lending. American Economic Review: Papers & Proceedings 112, 231-237.

Dell'Ariccia, G., Marquez, R. (2006). Competition among regulators and credit market integration. Journal of Financial Economics 79, 401-430.

Dell'Ariccia, G., Detragiache, E., Rajan, R. (2008). The real effect of banking crises. Journal of Financial Intermediation 17, 89-112.

Dell'Ariccia, G., Marquez, R. (2010). Risk and the corporate structure of banks. Jour- nal of Finance 65, 1075-1096.

Dewatripont, M., Freixas, X. (2011). Bank resolution: a framework for the assessment of regulatory intervention. Oxford Review of Economic Policy 27, 411-436.

Diamond, D.W., Dybvig, P. (1983). Banks runs, deposit insurance, and liquidity. Journal of Political Economy 91, 401-419.

Goodhart, C. and Schoenmaker, D. (2009). Fiscal burden sharing in cross-border banking crises. International Journal of Central Banking 5, 141-165.

Hagan, S., Vinals, J. (2010). Resolution of cross-border banks - A proposed framework for enhanced coordination. IMF Legal and Monetary and Capital Markets Departments.

Hellman, T., Murdock, K., Stiglitz, J. (2000). Liberalization, moral hazard in banking,and prudential regulation: Are capital requirements enough? American Economic Review 90, 147-165. 31

Kahn, C., Santos, J. (2005). Allocating bank regulatory powers: lender of last resort, deposit insurance and supervision. European Economic Review 49, 2107-2136.

Lipsey, R.G., Lancaster, K. (1956). The general theory of second best. Review of Economic Studies 24, 11-32.

Mitchell, J. (2000). Bad debts and the cleaning, transferring of banks' balance sheets: An application to transition economies. Journal of Financial Intermediation 10, 1-27.

Navaretti, G. B., Calzolari, G., Pozzolo, A.F., Levi, M. (2010). Multinational banking in Europe - financial stability and regulatory implications: lessons from the financial crisis. Economic Policy 64, 703-753.

Niepmann, F. (2015). Banking across borders. Journal of International Economics 96, 244-265.

Peek, J., Rosengren, E.S. (1997). The international transmission of financial shocks: The case of Japan. American Economic Review 87, 495-505.

Repullo, R. (2000). Who should act as a lender of last resort? An incomplete contracts model. Journal of Money, Credit and Banking 32, 580-605.

Repullo, R. (2004). Capital requirements, market power, and risk taking in banking. Journal of Financial Intermediation 13, 156-182.

Rochet, J.-Ch. (1992). Capital requirements and the behaviour of commercial banks. European Economic Review 36, 1137-1178.

Sinn, H.W. (1997). The selection principle and market failure in systems competition. Journal of Public Economics 66, 247-274. Sinn, H.W. (2003). Risktaking, limited liability, and the competition of bank regulators. Finanzarchiv 59, 305-329.