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

62 Pages Posted: 20 Apr 2016

See all articles by Asli Demirgüç-Kunt

Asli Demirgüç-Kunt

World Bank

Harry Huizinga

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

Multiple version iconThere are 3 versions of this paper

Date Written: January 1, 2012

Abstract

A bank's interest expenses rise with its degree of internationalization, measured by its share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration, especially if the bank is performing badly. The results in this paper suggest that an international bank's cost of funds raised through a foreign subsidiary is 1.5-2.4 percent higher than the cost of funds for a purely domestic bank. That is a sizeable difference, given that the overall mean cost of funds is 3.3 percent. These results can be explained by limited incentives for national authorities to bail out an international bank, as well as an inefficient recovery and resolution process for international banks. In any event, a less reliable financial safety net appears to be a barrier to cross-border banking.

Keywords: Banks & Banking Reform, Debt Markets, Access to Finance, Emerging Markets, Economic Theory & Research

Suggested Citation

Demirgüç-Kunt, Asli and Huizinga, Harry, Is the Financial Safety Net a Barrier to Cross-Border Banking? (January 1, 2012). World Bank Policy Research Working Paper No. 5947, Available at SSRN: https://ssrn.com/abstract=1988035

Asli Demirgüç-Kunt (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Harry Huizinga

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

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2623 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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