Regulation of Multinational Banks: A Theoretical Inquiry
38 Pages Posted: 5 Mar 2004
There are 2 versions of this paper
Regulation of Multinational Banks: A Theoretical Inquiry
Date Written: February 2004
Abstract
This Paper studies prudential regulation of a multinational bank (MNB hereafter). We analyse how two frequently chosen representation forms for MNBs - branch and subsidiary representation - affect the behaviour of national regulators. We find that the different liability structure and insurance arrangements for non-local depositors under the two representations have a crucial impact on regulators' behaviour. We show that branch representation leads to a more lenient regulation for the home unit (the unit of incorporation) than subsidiary representation. Regulation of the foreign unit can be softer or tougher in branch MNBs depending on the prospect of the home unit. We examine how intervention of a regulator in charge of a given bank's unit changes with the information received about the foreign units. We discuss the effect of lobbying activity and international resources transfers on its regulation.
Keywords: Multinational banks, prudential regulation, representation form, subsidiary, branch
JEL Classification: F23, G21, G28, L51
Suggested Citation: Suggested Citation
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