Supervising Cross‐Border Banks: Theory, Evidence and Policy

40 Pages Posted: 12 Feb 2013

See all articles by Radomir Todorov

Radomir Todorov

Government of Canada - Bank of Canada

Thorsten Beck

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

Wolf Wagner

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

Multiple version iconThere are 2 versions of this paper

Date Written: January 2013

Abstract

This paper analyses 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 provides 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.

Suggested Citation

Todorov, Radomir and Beck, Thorsten and Wagner, Wolf, Supervising Cross‐Border Banks: Theory, Evidence and Policy (January 2013). Economic Policy, Vol. 28, Issue 73, pp. 5-44, 2013. Available at SSRN: https://ssrn.com/abstract=2215448 or http://dx.doi.org/10.1111/1468-0327.12001

Radomir Todorov

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada

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

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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