Drivers of Structural Change in Cross-Border Banking Since the Global Financial Crisis

42 Pages Posted: 2 Oct 2014

See all articles by Franziska Bremus

Franziska Bremus

German Institute for Economic Research (DIW Berlin)

Marcel Fratzscher

DIW Berlin; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2014

Abstract

The paper analyzes the effects of changes to regulatory policy and to monetary policy on cross-border bank lending since the global financial crisis. Cross-border bank lending has decreased, and the home bias in the credit portfolio of banks has risen sharply, especially among banks in the euro area. Our results suggest that expansionary monetary policy in the source countries - as measured by the change in reserves held at central banks - has encouraged cross-border lending, both in euro area and non-euro area countries. Regarding regulatory policy, increases in financial supervisory power or independence of the supervisory authorities have encouraged credit outflows from source countries. The findings thus underline the importance of regulatory arbitrage as a driver of cross-border bank flows since the global financial crisis. However, in the euro area, arbitrage in capital stringency was linked to lower cross-border lending since the crisis.

Keywords: Cross-border bank lending, financial integration, regulation, arbitrage, monetary policy, home bias

JEL Classification: F30, G11, G15, G28

Suggested Citation

Bremus, Franziska and Fratzscher, Marcel, Drivers of Structural Change in Cross-Border Banking Since the Global Financial Crisis (September 2014). DIW Berlin Discussion Paper No. 1411. Available at SSRN: https://ssrn.com/abstract=2503866 or http://dx.doi.org/10.2139/ssrn.2503866

Franziska Bremus

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Marcel Fratzscher (Contact Author)

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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