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Bankers Without Borders? Implications of Ring-Fencing for European Cross-Border Banks

36 Pages Posted: 1 Feb 2011  

Eugenio Cerutti

Johns Hopkins University; International Monetary Fund (IMF)

Anna Ilyina

affiliation not provided to SSRN

Yulia Makarova

Independent

Christian Schmieder

International Monetary Fund

Date Written: November 2010

Abstract

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

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

Eugenio Cerutti

Johns Hopkins University ( email )

Baltimore, MD 21218
United States

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Anna Ilyina (Contact Author)

affiliation not provided to SSRN

No Address Available

Yulia Makarova

Independent

Christian Schmieder

International Monetary Fund ( email )

Washington DC
United States

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