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Cross-Border Banking in Europe and Financial Stability

International Finance, Vol. 16, 2013, forthcoming

Tinbergen Institute Discussion Paper No. TI 11-054/DSF18

22 Pages Posted: 21 Mar 2011 Last revised: 20 Feb 2013

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM); Centre for Economic Policy Research (CEPR)

Wolf Wagner

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Centre for Economic Policy Research (CEPR)

Date Written: October 1, 2012

Abstract

In this paper we propose country-specific and systemic metrics that allow quantifying whether cross-border banking in a country (or region) takes a desirable form. Applying these metrics to the EU countries, we find that the countries with the largest banking centers, UK and Germany, are well diversified. By contrast, the New Member States (NMS) are highly dependent on a few West-European banks and vulnerable to contagion effects. The Nordic and Baltic regions are much interwoven without much diversification. At the system-wide level, the EU banking system is weakly diversified, with an overexposure to the US and an underexposure to Japan and China. This explains why the recent US originated financial crisis had such a large impact on European banks.

Keywords: International Banking, Portfolio Diversification, Financial Stability

JEL Classification: G21, G28

Suggested Citation

Schoenmaker, Dirk and Wagner, Wolf, Cross-Border Banking in Europe and Financial Stability (October 1, 2012). Tinbergen Institute Discussion Paper No. TI 11-054/DSF18. Available at SSRN: https://ssrn.com/abstract=1790882 or http://dx.doi.org/10.2139/ssrn.1790882

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam
Netherlands

HOME PAGE: http://www.rsm.nl/people/dirk-schoenmaker/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Wolf Wagner (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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