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Systemic Risk, International Regulation, and the Limits of Coordination

Systemic Risk, International Regulation, and the Limits of Coordination published on

Authored by Federal Reserve Board

This study examines the incentives of national regulators to coordinate regulatory policies in the presence of systemic risk in global financial markets. In a two-country and three-period model, correlated asset fire sales by banks generate systemic risk across national financial mar- kets. Relaxing regulatory standards in one country increases both the cost and the severity of crises for both countries in this framework. In the absence of coordination, independent regulators choose inefficiently low levels of macro-prudential regulation. A central regulator internalizes the systemic risk and thereby can improve the welfare of coordinating countries. Symmetric countries always benefit from coordination. Asymmetric countries choose different levels of macro-prudential regulation when they act independently. Common central regulation will voluntarily emerge only between sufficiently similar countries.

Publication Date:
Nov 19 2014
ISBN/EAN13:
1503283453 / 9781503283459
Page Count:
60
Binding Type:
US Trade Paper
Trim Size:
8.5″ x 11″
Language:
English
Color:
Black and White
Related Categories:
Business & Economics / General

12.95

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