Under-Regulated and Over-Guaranteed? International Bank Mergers and Bank Risk-Taking

43 Pages Posted: 9 Aug 2004

See all articles by Claudia M. Buch

Claudia M. Buch

Deutsche Bundesbank

Gayle L. DeLong

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: August 2004

Abstract

Weak bank supervision gives banks the ability to shift risk from themselves to supervisors. One way for banks to take advantage of weak supervisory systems is to engage in risky activities such as cross-border bank mergers. We examine whether the supervisory structure of a country influences the decision to engage in a cross-border merger by looking at the number of such mergers between OECD countries between 1985 and 2001. We also look at the change in risk profile associated with 299 individual mergers. We find that banks expand into countries that provide good business opportunities. However, once a bank decides to expand into a country, the decision to increase or decrease risk appears to be related to its home supervisory structure. Strong supervision - especially fairly priced deposit insurance - appears to mitigate moral hazard.

Keywords: Banks, international financial markets, regulation

JEL Classification: F36, G15, G21, G28

Suggested Citation

Buch, Claudia M. and DeLong, Gayle L., Under-Regulated and Over-Guaranteed? International Bank Mergers and Bank Risk-Taking (August 2004). Available at SSRN: https://ssrn.com/abstract=573701 or http://dx.doi.org/10.2139/ssrn.573701

Claudia M. Buch

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Gayle L. DeLong (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

One Bernard Baruch Way
Box B 10-225
New York, NY 10010
United States
646-312-3493 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://faculty.baruch.cuny.edu/gdelong

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