Bank capital regulation: A role for a supranational regulator ?

Carole Haritchabalet (1) , Laetitia Lepetit (2) , Kévin Spinassou (2) , Frank Strobel (3)

1 CATT - Centre d'Analyse Théorique et de Traitement des données économiques
2 LAPE - Laboratoire d'Analyse et de Prospective Economique
3 University of Birmingham [Birmingham]

Using a simple two-country model where national or supranational regulators can set capital requirements as either risk sensitive capital or leverage ratios, we examine which of these arrangements is best. Our results demonstrate the importance of capital requirements being set at a supranational level particularly when crosscountry spillovers are large and national regulators suffer from substantial degrees of regulatory capture. We further highlight the importance of allowing for supervisory "remoteness" in this context, and show that national regulators may want to surrender regulatory power only when spillover effects are large but the degree of supervisory capture is relatively small.

Keywords: bank regulation; capital requirement; supranational; spillover; regulatory capture

Domains: Economics and Finance

Carole Haritchabalet, Laetitia Lepetit, Kévin Spinassou, Frank Strobel. Bank capital regulation: A role for a supranational regulator ?. 32nd International Symposium on Money, Banking and Finance, Jun 2015, Nice, France. ⟨hal-02440576⟩