European Banks Straddling Borders: Risky or Rewarding?

38 Pages Posted: 25 Jul 2017

See all articles by Patty Duijm

Patty Duijm

De Nederlandsche Bank

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2017

Abstract

Theory suggests that cross-border banking is beneficial as long as there is a non-perfect correlation across country-specific risks. Using a unique hand-collected dataset with cross-border loans for the 61 largest European banks, we find that cross-border banking in general decreases bank risk, and that the beneficial impact from cross-border banking increases when banks diversify more into countries with dissimilar economic and financial conditions. However, we find that banks do not fully utilize these diversification opportunities as banks mainly invest in countries that are economically more similar to their home country.

Keywords: Bank Regulation, Financial Stability, Geographical Diversification, International Banking, Risk

JEL Classification: E44, G21, G28

Suggested Citation

Duijm, Patty and Schoenmaker, Dirk, European Banks Straddling Borders: Risky or Rewarding? (July 2017). CEPR Discussion Paper No. DP12159, Available at SSRN: https://ssrn.com/abstract=3008340

Patty Duijm (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam
Netherlands

HOME PAGE: http://www.rsm.nl/people/dirk-schoenmaker/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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