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Multiple safety net regulators and agency problems in the EU: Is Prompt Corrective Action partly the solution?

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  • Mayes, David G.
  • Nieto, María J.
  • Wall, Larry
Abstract
This paper presents a stylized mechanism aimed at dealing with the cross border agency problems that arise in supervising and resolving cross border banking groups in the European Union (EU). The authors assume that PCA policies have been implemented by the national supervisors and explore the institutional changes needed in Europe if PCA is to be effective as an incentive compatible mechanism. The paper identifies these changes starting with enhancements in the availability of information on banking groups to supervisors. Next, the paper considers the collective decision making by supervisors with authority to make discretionary decisions within the PCA framework as soon as a bank of a cross border banking group falls below the minimum capital standard. Finally, the paper analyzes the coordination measures that should be implemented if PCA requires the bank to be resolved.
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Suggested Citation

  • Mayes, David G. & Nieto, María J. & Wall, Larry, 2008. "Multiple safety net regulators and agency problems in the EU: Is Prompt Corrective Action partly the solution?," Journal of Financial Stability, Elsevier, vol. 4(3), pages 232-257, September.
    • Handle: RePEc:eee:finsta:v:4:y:2008:i:3:p:232-257
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    More about this item

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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