Systemic risk, international regulation, and the limits of coordination ¬リニ

Article history: Received 6 August 2014 Received in revised form 14 November 2015 Accepted 16 November 2015 Available online 26 November 2015 This paper examines the incentives of national regulators to coordinate capital adequacy requirements in the presence of systemic risk in global financial markets. In a two-country model, correlated asset fire sales by banks generate systemic risk across national financial markets. Absent coordination, national regulators choose inefficiently low levels of macro-prudential regulation. Thus, symmetric countries always benefit from relinquishing their authority to a central regulator that establishes uniform regulations across countries. I also consider the separate case of asymmetric countries: while there is a limit to coordination when countries are sufficiently asymmetric in a single dimension, existence of asymmetries in multiple dimensions might actually relax this limit or even eliminate it. Published by Elsevier B.V. JEL classification: F36 G15 G18 G21