Supervising Cross-Border Banks: Theory, Evidence and Policy

42 Pages Posted: 17 Mar 2012 Last revised: 17 May 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

Government of Canada - Bank of Canada

Wolf Wagner

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

Date Written: March 15, 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 (March 15, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2023697 or http://dx.doi.org/10.2139/ssrn.2023697

Thorsten Beck

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 (Contact Author)

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada

Wolf Wagner

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 )

London
United Kingdom

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