The regulator's trade-off: bank supervision vs. minimum capital

Florian Buck, Eva Schliephake

Resultado de pesquisa


We develop a simple model of banking regulation with two policy instruments: minimum capital requirements and supervision of domestic banks. The regulator faces a trade-off: high capital requirements cause a drop in the banks’ profitability, while strict supervision reduces the scope of intermediation and is costly for taxpayers. We show that the expected costs of a banking crisis are minimised with a mix of both instruments. Once we allow for cross-border banking, the optimal policy is not feasible. If domestic supervisory effort is not observable, our model predicts a race to the bottom in banking regulation. Therefore, countries are better off by harmonising regulation on an international standard.
Idioma originalEnglish
Número de páginas28
Estado da publicaçãoPublicado - 10 set. 2012
Publicado externamenteSim

Série de publicação

NomeCESifo Working Paper Series

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