Is the Financial Safety Net a Barrier to Cross-Border Banking?

European Banking Center Discussion Paper No. 2011-037

CentER Discussion Paper No. 2011-132

61 Pages Posted: 14 Dec 2011

See all articles by Harry Huizinga

Harry Huizinga

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR)

Ata Can Bertay

Sabancı University; Tilburg University - European Banking Center

Asli Demirgüç-Kunt

World Bank

Multiple version iconThere are 3 versions of this paper

Date Written: December 7, 2011

Abstract

A bank’s interest expenses are found to increase with its degree of internationalization as proxied by its share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration, especially if the bank is performing badly. Our benchmark estimation suggests that an international bank’s cost of funds raised through a foreign subsidiary is between 1.5% and 2.4% higher than the cost of funds for a purely domestic bank, which is a sizeable difference given an overall mean cost of funds of 3.3%. These results are consistent with limited incentives for national authorities to bail out an international bank, but also with an international bank recovery and resolution process that is inefficient. In any event, the operation of the financial safety net appears to be a barrier to cross-border banking.

Keywords: bank bailouts, international burden sharing, cross-border banking

JEL Classification: F36, G21, G28

Suggested Citation

Huizinga, Harry and Bertay, Ata Can and Demirgüç-Kunt, Asli, Is the Financial Safety Net a Barrier to Cross-Border Banking? (December 7, 2011). European Banking Center Discussion Paper No. 2011-037, CentER Discussion Paper No. 2011-132, Available at SSRN: https://ssrn.com/abstract=1969289 or http://dx.doi.org/10.2139/ssrn.1969289

Harry Huizinga (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ata Can Bertay

Sabancı University ( email )

Orhanli
Istanbul, Tuzla 34956
Turkey

HOME PAGE: http://www.atabertay.com

Tilburg University - European Banking Center ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Asli Demirgüç-Kunt

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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