Supervising Cross-Border Banks: Theory, Evidence and Policy

European Banking Center Discussion Paper No. 2012-015

CentER Discussion Paper Series No. 2012-059

43 Pages Posted: 30 Nov 2011 Last revised: 18 Jul 2012

See all articles by Thorsten Beck

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Radomir Todorov

University of Amsterdam - Finance Group

Wolf Wagner

Erasmus University Rotterdam (EUR); Centre for Economic Policy Research (CEPR)

Date Written: July 18, 2012

Abstract

This paper analyzes the distortions that banks’ cross-border activities, such as foreign assets, deposits and equity, can introduce into regulatory interventions. We find that while each individual dimension of cross-border activities distorts the incentives of a domestic regulator, a balanced amount of cross-border activities does not necessarily cause inefficiencies, as the various distortions can offset each other. Empirical analysis using bank-level data from the recent crisis provide support to our theoretical findings. Specifically, banks with a higher share of foreign deposits and assets and a lower foreign equity share were intervened at a more fragile state, reflecting the distorted incentives of national regulators. We discuss several implications for the supervision of cross-border banks in Europe.

Keywords: Bank regulation, bank resolution, cross-border banking

JEL Classification: G21, G28

Suggested Citation

Beck, Thorsten and Todorov, Radomir and Wagner, Wolf, Supervising Cross-Border Banks: Theory, Evidence and Policy (July 18, 2012). European Banking Center Discussion Paper No. 2012-015, CentER Discussion Paper Series No. 2012-059, Available at SSRN: https://ssrn.com/abstract=1966444

Thorsten Beck (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Radomir Todorov

University of Amsterdam - Finance Group ( email )

Roetersstraat 18
Amsterdam, 1018 WB
Netherlands

Wolf Wagner

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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