CEF.UP – FIN Seminar/Webinar

Thursday – February 9^th, 2023 at 1:00 p.m. |Room 305| Online

“Incomplete supervisory cooperation“

Wolf Wagner – Rotterdam School of Management and CEPR (joint work with Thorsten Beck and Consuelo Silva-Buston)

Abstract:

“Banking supervisors frequently cooperate across countries, but cooperation only imperfectly covers the global operations of large banking groups. We show that this causes significant third-country externalities. Using hand-collected supervisory cooperation data, we document that banking groups shift lending activities and risk into third-country subsidiaries when cooperation agreements cover their operations in other countries. The implied country-level increase in the share of foreign loans is 16%. We also show that countries do not internalize third-country effects when making cooperation decisions, resulting in a 26 percentage point higher propensity to cooperate. Overall, our results highlight a need for “cooperating on cooperation.”