The paper studies the consequences for supervisors' and banks' behavior of a "hub-and-spokes" supervisory system where a centralized agency has authority over banks, but relies on local supervisors to collect actionable information. The model entails a principal-agent problem between central and local supervisors that leads to tougher supervisory standards, but less compliance on the side of the supervised banks. Centralization entails greater inspection effort by the local supervisor and less bank risk taking if the divergence in the intervention policy of the central and the local supervisors is sufficiently small, but to less effort and riskier bank portfolios if the divergence is large. The model has implications for the design of supervisory frameworks within integrated economies.
Supervisory incentives in a banking union
Elena Carletti
;
2021
Abstract
The paper studies the consequences for supervisors' and banks' behavior of a "hub-and-spokes" supervisory system where a centralized agency has authority over banks, but relies on local supervisors to collect actionable information. The model entails a principal-agent problem between central and local supervisors that leads to tougher supervisory standards, but less compliance on the side of the supervised banks. Centralization entails greater inspection effort by the local supervisor and less bank risk taking if the divergence in the intervention policy of the central and the local supervisors is sufficiently small, but to less effort and riskier bank portfolios if the divergence is large. The model has implications for the design of supervisory frameworks within integrated economies.File | Dimensione | Formato | |
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Fwd_ Decision on Manuscript_ MS-FIN-18-01660.R1.pdf
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Descrizione: decision letter from the editor
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Allegato per valutazione Bocconi (Attachment for Bocconi evaluation)
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wp16186.pdf
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Tipologia:
Allegato per valutazione Bocconi (Attachment for Bocconi evaluation)
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NON PUBBLICO - Accesso privato/ristretto
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1 MB
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