Evidence of Regulatory Arbitrage in Cross-Border Mergers of Banks in the EU

32 Pages Posted: 3 Nov 2009 Last revised: 17 Sep 2010

See all articles by Santiago Carbo-Valverde

Santiago Carbo-Valverde

Bangor Business School; Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF)

Edward J. Kane

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History

Date Written: October 2009

Abstract

Banks are in the business of taking calculated risks. Expanding the geographic footprint of an organization's profit-making activities changes the geographic pattern of its exposure to loss in ways that are hard for regulators and supervisors to observe. This paper tests and confirms the hypothesis that differences in the character of safety-net benefits that are available to banks in individual EU countries help to explain the nature of cross-border merger activity. If they wish to protect taxpayers from potentially destabilizing regulatory arbitrage, central bankers need to develop statistical procedures for assessing supervisory strength and weakness in partner countries. We believe that the methods and models used here can help in this task.

Suggested Citation

Carbo-Valverde, Santiago and Kane, Edward J. and Rodriguez-Fernandez, Francisco, Evidence of Regulatory Arbitrage in Cross-Border Mergers of Banks in the EU (October 2009). NBER Working Paper No. w15447. Available at SSRN: https://ssrn.com/abstract=1498948

Santiago Carbo-Valverde

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF) ( email )

Serrano Anguita 9
Madrid, Madrid 28004
Spain

Edward J. Kane (Contact Author)

Boston College - Department of Finance ( email )

Fulton Hall
Chestnut Hill, MA 02467
United States
520-299-5066 (Phone)
617-552-0431 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History ( email )

Granada
Spain

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