Cross-Border Bank Flows and Systemic Risk

62 Pages Posted: 23 Mar 2017  

George Andrew Karolyi

Cornell University - Johnson Graduate School of Management

John Sedunov III

Villanova University - Department of Finance

Alvaro G. Taboada

Mississippi State University

Date Written: March 13, 2017

Abstract

Using data on cross-border bank flows from 26 source countries to 128 target countries, we find that bank inflows are associated with improved financial stability and lower systemic risk in the bank systems in the target country. The flows are greater between source (target) countries with more (less) stringent de jure regulations that govern the bank systems. And the link between increased flows and reductions in marginal expected shortfall (MES) are concentrated among larger banks, those with poorer asset quality, and those that rely more on non-traditional banking activities and on more volatile sources of funds. Additional evidence suggests that bank flows help to reduce MES by improving target-country bank asset quality, efficiency, and reliance on non-traditional revenue sources. Overall, we interpret our findings as in support of a benign view of regulatory arbitrage in international bank flows.

Keywords: Cross-border bank flows, financial institutions, bank regulation, systemic risk, financial crises

JEL Classification: G21, G28, G34, G38

Suggested Citation

Karolyi, George Andrew and Sedunov, John and Taboada, Alvaro G., Cross-Border Bank Flows and Systemic Risk (March 13, 2017). Available at SSRN: https://ssrn.com/abstract=2938544

George Andrew Karolyi

Cornell University - Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

John Sedunov III (Contact Author)

Villanova University - Department of Finance ( email )

800 Lancaster Ave.
Villanova, PA 19085
United States
610-519-4374 (Phone)

HOME PAGE: http://homepage.villanova.edu/john.sedunov/

Alvaro G. Taboada

Mississippi State University ( email )

Mississippi State, MS 39762
United States
662-325-6716 (Phone)
662-325-1977 (Fax)

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