Supervising Cross-Border Banks: Theory, Evidence and Policy
Tilburg University - European Banking Center, CentER
Tilburg University - European Banking Center; Tilburg University - Department of Finance; Tilburg University - Center and Faculty of Economics and Business Administration
Tilburg University - Department of Economics; Duisenberg School of Finance; TILEC
July 18, 2012
European Banking Center Discussion Paper No. 2012-015
CentER Discussion Paper Series No. 2012-059
This paper analyzes the distortions that banks’ cross-border activities, such as foreign assets, deposits and equity, can introduce into regulatory interventions. We find that while each individual dimension of cross-border activities distorts the incentives of a domestic regulator, a balanced amount of cross-border activities does not necessarily cause inefficiencies, as the various distortions can offset each other. Empirical analysis using bank-level data from the recent crisis provide support to our theoretical findings. Specifically, banks with a higher share of foreign deposits and assets and a lower foreign equity share were intervened at a more fragile state, reflecting the distorted incentives of national regulators. We discuss several implications for the supervision of cross-border banks in Europe.
Number of Pages in PDF File: 43
Keywords: Bank regulation, bank resolution, cross-border banking
JEL Classification: G21, G28Accepted Paper Series
Date posted: November 30, 2011 ; Last revised: July 18, 2012
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