A Model of Takeovers of Foreign Banks

CEMFI Working Paper No. 0015

28 Pages Posted: 27 Jan 2001

See all articles by Rafael Repullo

Rafael Repullo

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2000

Abstract

This paper investigates the determinants of the takeover of a foreign bank by a domestic bank whereby the former becomes a branch of the latter. Each bank is initially supervised by a national agency that cares about closure costs and deposit insurance payouts, and may decide the early closure of the bank on the basis of supervisory information. Under the principle of home country control, the takeover moves responsibility for both the supervision of the foreign bank and the insurance of the foreign deposits to the domestic agency. It is shown that the takeover is more likely to happen if the foreign bank is small (relative to the foreign banking market) and its' investments are risky (relative to those of the domestic bank). Moreover, the takeover is in general welfare improving for both countries.

Keywords: International banks, takeovers in banking, cross-border bank mergers, bank supervision, bank closure, deposit insurance, home country control

JEL Classification: G21, G28, G34

Suggested Citation

Repullo, Rafael, A Model of Takeovers of Foreign Banks (October 2000). CEMFI Working Paper No. 0015. Available at SSRN: https://ssrn.com/abstract=257595 or http://dx.doi.org/10.2139/ssrn.257595

Rafael Repullo (Contact Author)

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91429 0551 (Phone)
+34 91429 1056 (Fax)

HOME PAGE: http://www.cemfi.es/~repullo/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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