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international treaty on bank resolution

I, wregulators jointly maximize global welfare and can credibly commit to a resolution plan ex ante, thereby emulating a supranational regulatory authority. In which contains our main results, we then contrast this benchmark with the more realistic scenario in which regulators cannot credibly commit to a resolution plan and act according to the best interests of their own jurisdiction. This noncommitment case captures the regulatory status quo because, in the absence of an international treaty on bank resolution, sovereignty makes it impossible for regulators to credibly commit to cooperating with other regulators in a G-SIB resolution. Therefore, when push comes to shove, regulators will act in their own national interest, and regulatory incentive constraints become key to successful resolution.12 While in our model national interests are simply assumed, they arise naturally from political economy considerations. In particular, national regulators are likely to be reluctant to share resources with other jurisdictions in resolution, unless doing so improves the resolution outcome in their own jurisdiction.1To capture this in the simplest possible way, we assume that, in resolution, each national regulator maximizes value in its own jurisdiction, disregarding outcomes in the other jurisdiction. Of course, assuming this extreme form of national interest is not necessary, all of our results hold as long as the regulator in jurisdiction |$i$| applies a discount to cash flows in jurisdiction |$j$|⁠