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Bank capital regulation: are local or central regulators better?

Author

Listed:
  • Carole Haritchabalet

    (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour)

  • Laetitia Lepetit

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Kévin Spinassou

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Frank Strobel

    (University of Birmingham [Birmingham])

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.

Suggested Citation

  • Carole Haritchabalet & Laetitia Lepetit & Kévin Spinassou & Frank Strobel, 2017. "Bank capital regulation: are local or central regulators better?," Post-Print hal-01486546, HAL.
    • Handle: RePEc:hal:journl:hal-01486546
    as

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    References listed on IDEAS

    as
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    2. Nguyen, James & Parsons, Richard & Argyle, Bronson, 2021. "An examination of diversification on bank profitability and insolvency risk in 28 financially liberalized markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).

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    More about this item

    Keywords

    Capital requirement; Spillover; Regulatory capture; Financial architecture; Bank regulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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