When the Cat's Away the Mice will Play: Does Regulation at Home Affect Bank Risk Taking Abroad?
University of Zurich - Department of Banking and Finance; Swiss Finance Institute
Alexander A. Popov
European Central Bank (ECB)
Gregory F. Udell
Indiana University - Kelley School of Business - Department of Finance
October 22, 2012
ECB Working Paper No. 1488
This paper provides the first empirical evidence that bank regulation is associated with cross-border spillover effects through the lending activities of large multinational banks. We analyze business lending by 155 banks to 9613 firms in 1976 different localities across 16 countries. We find that lower barriers to entry, tighter restrictions on bank activities, and higher minimum capital requirements in domestic markets are associated with lower bank lending standards abroad. The effects are stronger when banks are less efficiently supervised at home, and are observed to exist independently from the impact of host-country regulation.
Number of Pages in PDF File: 64
Keywords: bank regulation, cross-border financial institutions, lending standards, financial risk
JEL Classification: G21, G28, G32
Date posted: November 21, 2012