Title International versus domestic auditing of bank solvency / Andrew Feltenstein and Roger Lagunoff

Published Washington, D.C. : International Monetary Fund, ©2003

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Description 1 online resource (29 pages) Series IMF working paper, 2227-8885 ; WP/03/190 IMF working paper ; WP/03/190. Contents Contents -- 1 Introduction -- 2 The Model -- 3 Voluntary Disclosure by Banks -- 4 Central Bank Auditing and Disclosure -- 5 International Auditing and Disclosure -- 6 Conclusion -- 7 Proofs of the Results -- References Summary This paper examines alternative ways to prevent losses from bank insolvencies. It is widely viewed that transparency in reporting bank balance sheets is a key element in reducing such losses. It is, however, unclear just how such transparency would be achieved. Current approaches to avoiding insolvencies generally involve international enforcement mechanisms. Among these are the sovereign debt restructuring mechanism (SDRM), and, more generally, an international bankruptcy court. We develop a model that compares two alternative institutions for bank auditing. Neither of these institutions would require as much enforcement capability as an international bankruptcy court, hence they would be easier to introduce. The first of these is a system of central bank auditing of national banks. The second type of auditing is carried out by an international agency that collects risk information on banks in all countries and then provides it to depositors. Using a game-theoretic approach, we compare the informativeness of the disclosure rule in the symmetric Perfect Bayesian equilibrium in each of the two different auditing institutions. We show that the international auditor generally performs at least as well, and sometimes better than, auditing by either central banks, which, in turn, perform better than voluntary disclosure by the banks themselves. The results do not assume any informational advantages of the international auditor, nor is the international auditor somehow less "corrupt" than the central banks. Rather, the international auditor's credibility comes from the simple fact that its incentives are not distorted by a sovereignty bias that plagues the central banks Bibliography Includes bibliographical references Notes Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212 MiAaHDL digitized 2010 HathiTrust Digital Library committed to preserve pda MiAaHDL Print version record Subject Bank failures. Auditing, Internal. Banks and banking, Central. Bank examination. Banks of issue. Banks of issue Auditing, Internal Bank examination Bank failures Banks and banking, Central Form Electronic book Author Lagunoff, Roger, author IMF Institute. International Monetary Fund. ISBN 1282050761 9781282050761 9781451905045 1451905041 9781451859683 1451859686

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