By Dirk Schoenmaker
Within the aftermath of the monetary main issue, the company version of overseas banks is stressed. Regulators the world over are retrenching to nationwide traces by way of using regulations on cross-border banking. making use of video game thought, this ebook develops a version of the monetary trilemma to appreciate the co-ordination failure between regulators. It additionally presents governance options to beat this co-ordination failure. The objective is to supply a long term viewpoint on foreign banking for regulators and lecturers. The ebook combines educational insights and coverage concerns.
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Extra info for Governance of International Banking: The Financial Trilemma
The home country thus recapitalizes ( * = 1) the entire financial institution when α h ∈(C B , 1]. Otherwise α h < C B ; the closure equilibrium occurs ( * = 0), even when recapitalization is the optimal strategy: B > C. So when a bank becomes more international ( h ↓ ), the scope for coordination failure increases. 1 states that national financial policies are still efficient when the home country benefits α h stay within the range from C/B to 1. This is a narrow range, in particular when the benefits are close to the costs B C.
But MoUs are signed on a voluntarily basis, following a soft law approach. The last article of a typical MoU specifies that the arrangements discussed are not legally binding and thus preserve the sovereignty of national supervisors. Claessens, Herring, and Schoenmaker (2010) note dryly that these MoUs were not used during the crisis (see also chapter 4). International policy proposals have so far focused on a soft law approach to address the governance challenge in global banking (Brummer 2010; Alexander and Ferran 2011).
Immanuel Kant I nternational governance is a favorite topic of academics and policymakers alike. The trilemma is a powerful tool to highlight the challenges and trade-offs in international policy coordination. Rodrik (2000) provides a lucid overview of the general working of the trilemma in an international environment. As international economic integration progresses, the policy domain of nation-states has to be exercised over a much narrower domain and global federalism with international policy coordination will increase.