Multinational Banks and Supranational Supervision

Author:

Calzolari Giacomo1,Colliard Jean-Edouard2,Lóránth Gyongyi3

Affiliation:

1. European University Institute, University of Bologna, and CEPR

2. HEC Paris

3. University of Vienna, ESADE Business School, and CEPR

Abstract

Abstract Supervision of multinational banks (MNBs) by national supervisors suffers from coordination failures. We show that supranational supervision solves this problem and decreases the public costs of an MNB’s failure, taking its organizational structure as given. However, the MNB strategically adjusts its structure to supranational supervision. It converts its subsidiary into a branch (or vice versa) to reduce supervisory monitoring. We identify the cases in which this endogenous reaction leads to unintended consequences, such as higher public costs and lower welfare. Current reforms should consider that MNBs adapt their organizational structures to changes in supervision. Received January 9, 2017; editorial decision September 15, 2018 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Publisher

Oxford University Press (OUP)

Subject

Economics and Econometrics,Finance,Accounting

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