Bahaj, Saleem;
Malherbe, Frederic;
(2024)
The cross-border effects of bank capital regulation.
Journal of Financial Economics
, 160
, Article 103912. 10.1016/j.jfineco.2024.103912.
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Abstract
We study the international coordination of bank capital requirements under a host-country rule: the requirement depends on where the borrower, not the bank, is located. In such a regime, countries compete for scarce bank equity capital. Raising a country’s requirement may generate bank capital outflows as well as inflows. We pin down the condition for the sign of the capital flow and the associated externality, and highlight the policy implications. Absent collaboration, overshooting is likely: individual countries have an incentive to increase Basel III’s Counter-Cyclical Capital Buffer too much in good times and cut it too much in bad times.
| Type: | Article |
|---|---|
| Title: | The cross-border effects of bank capital regulation |
| DOI: | 10.1016/j.jfineco.2024.103912 |
| Publisher version: | https://doi.org/10.1016/j.jfineco.2024.103912 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | CCyB; International coordination; Race to the bottom; Race to the top; Liquidity services |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10189190 |
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