A Model of Takeovers of Foreign Banks

31 Pages Posted: 22 Feb 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)

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Date Written: December 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: Bank closure, bank supervision, cross-border bank mergers, deposit insurance, home country control, international banks, takeovers in banking

JEL Classification: G21, G28, G34

Suggested Citation

Repullo, Rafael, A Model of Takeovers of Foreign Banks (December 2000). Available at SSRN: https://ssrn.com/abstract=258071

Rafael Repullo (Contact Author)

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

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

Centre for Economic Policy Research (CEPR)

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United Kingdom

European Corporate Governance Institute (ECGI)

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