36 Pages Posted: 1 Feb 2011
Date Written: November 2010
This paper presents a stylized analysis of the effects of ring-fencing (i.e., different restrictions on cross-border transfers of excess profits and/or capital between a parent bank and its subsidiaries located in different jurisdictions) on cross-border banks. Using a sample of 25 large European banking groups with subsidiaries in Central, Eastern and Southern Europe (CESE), we analyze the impact of a CESE credit shock on the capital buffers needed by the sample banking groups under different forms of ring-fencing. Our simulations show that under stricter forms of ring-fencing, sample banking groups have substantially larger needs for capital buffers at the parent and/or subsidiary level than under less strict (or in the absence of any) ring-fencing.
Keywords: Banks, Capital, Credit risk, Cross country analysis, Eastern Europe, International banking, Regional shocks
Suggested Citation: Suggested Citation
Cerutti, Eugenio and Ilyina, Anna and Makarova, Yulia and Schmieder, Christian, Bankers Without Borders? Implications of Ring-Fencing for European Cross-Border Banks (November 2010). IMF Working Papers, Vol. , pp. 1-35, 2010. Available at SSRN: https://ssrn.com/abstract=1750736