Multinational Banking in Europe: Financial Stability and Regulatory Implications - Lessons from the Financial Crisis

44 Pages Posted: 6 Apr 2011

See all articles by Giorgio Barba Navaretti

Giorgio Barba Navaretti

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM); University of Milan - Centro Studi Luca d'Agliano (LdA)

Giacomo Calzolari

European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR); University of Bologna

Micol Levi

Centro Studi Luca d’Agliano

Alberto F. Pozzolo

Università degli Studi di Roma Tre

Multiple version iconThere are 3 versions of this paper

Date Written: April 1, 2010

Abstract

This paper examines whether multinational banks have a stabilising or a destabilising role during times of financial distress. With a focus on Europe, it looks at how these banks' foreign affiliates have been faring during the recent financial crisis. It finds that retail and corporate lending of these foreign affiliates have been stable and even increasing between 2007 and 2009. This pattern is related to the functioning of the internal capital market through which these banks funnel funds across their units. The internal capital market has been an effective tool to support foreign affiliates in distress and to isolate their lending from the local availability of financial resources, notwithstanding the systemic nature of the recent crisis. This effect has been particularly large within the EU integrated financial market and for the EMU countries, thus showing complementarity between economic integration and multinational banks' internal capital markets. In light of these findings, this paper supports the call for an integration of the European supervisory and regulatory framework overseeing multinational banks. The analysis is based on an analytical framework which derives the main conditions under which the internal capital market can perform this support function under idiosyncratic and systemic stresses. The empirical evidence uses both aggregate evidence on foreign claims worldwide, and firm-level evidence on the behaviour of banking groups' affiliates, compared to standing alone national banks.

Keywords: multinational banking, financial stability, regulation and supervision, internal capital

JEL Classification: G01, G15, G18

Suggested Citation

Barba Navaretti, Giorgio and Calzolari, Giacomo and Levi, Micol and Pozzolo, Alberto F., Multinational Banking in Europe: Financial Stability and Regulatory Implications - Lessons from the Financial Crisis (April 1, 2010). Centro Studi Luca d'Agliano Development Studies Working Paper No. 292. Available at SSRN: https://ssrn.com/abstract=1803405 or http://dx.doi.org/10.2139/ssrn.1803405

Giorgio Barba Navaretti (Contact Author)

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM) ( email )

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University of Milan - Centro Studi Luca d'Agliano (LdA) ( email )

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Giacomo Calzolari

European University Institute - Economics Department (ECO) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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University of Bologna ( email )

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Italy

HOME PAGE: http://sites.google.com/view/giacomo-calzolari

Micol Levi

Centro Studi Luca d’Agliano ( email )

Via P. Amedeo 34

Alberto F. Pozzolo

Università degli Studi di Roma Tre ( email )

Via Ostiense 163
Roma, RM 00154
Italy

HOME PAGE: http://www.uniroma3.it/

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