International policy coordination mechanism with respect to the moral hazards of financial intermediaries

► We examine the impact of cross-border financial externalities on moral hazards of the banking sector and the role of an international policy coordination mechanism. ► We demonstrate that international policy coordination is less likely to be sustained when the policy maker is short-sighted and the banking sector has greater political influence. ► The results imply that international financial coordination mechanism should start with countries with higher administrative transparency, more political stability, and enhanced financial integration.