We argue that the extent to which supervision of banks takes place on the supranational level should be guided by two factors: cross-border externalities from bank failures and heterogeneity in bank failure costs. Based on a simple model we show that supranational supervision is more likely to...

Abstract: This paper analyzes the distortions that banks’ cross-border activities, such as foreign assets, deposits and equity, can introduce into regulatory interventions. We find that while each individual dimension of cross-border activities distorts the incentives of a domestic regulator,...

This paper analyzes the distortions that banks’ cross-border activities, such as foreign assets, deposits and equity, can introduce in the regulatory process. We find that while each individual dimension of cross-border activities distorts the incentives of a domestic regulator, a balanced...