Skip to main content
Article thumbnail
Location of Repository

Is the financial safety net a barrier to cross-border banking ?

By Ata Can Bertay, Demirguc-Kunt Asli and Harry Huizinga

Abstract

A bank's interest expenses rise with its degree of internationalization, measured by its share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration, especially if the bank is performing badly. The results in this paper suggest that an international bank's cost of funds raised through a foreign subsidiary is 1.5-2.4 percent higher than the cost of funds for a purely domestic bank. That is a sizeable difference, given that the overall mean cost of funds is 3.3 percent. These results can be explained by limited incentives for national authorities to bail out an international bank, as well as an inefficient recovery and resolution process for international banks. In any event, a less reliable financial safety net appears to be a barrier to cross-border banking.Banks&Banking Reform,Debt Markets,Access to Finance,Emerging Markets,Economic Theory&Research

OAI identifier:

Suggested articles

Citations

  1. (2000). A bank’s foreign liabilities and bank interest expense The dependent variable is Interest expense, which is interest expense over bank liabilities excluding non-interest bearing debt. Assets is the natural logarithm of total assets in constant
  2. (2000). Assets is the natural logarithm of total assets in constant
  3. (2010). Bankers without borders? Implications of ring-fencing for European cross-border banks, IMF Working Paper 10/234, International Monetary Fund.
  4. (2009). Being a foreigner among domestic banks: Asset or liability?, De Nederlandsche Bank Working Paper 224.
  5. (2010). Committee on the Global Financial System,
  6. (2003). Crisis management in Europe, in Financial supervision
  7. (2011). Cross-border banking in Europe: Implications for financial stability and macroeconomic policies, Centre for Economic Policy Research,
  8. (2002). Depositor discipline and changing strategies for regulating thrift institutions,
  9. (2001). Directive on financial conglomerates.
  10. (2001). Directive on the winding-up of credit institutions,
  11. (2001). Do depositors punish banks for bad behavior? Market discipline, deposit insurance, and banking crises,
  12. (2006). European banking integration: Don’t put the cart before the horse,
  13. (1996). Evidence of bank market discipline in subordinated debenture yields: 1983-1991,
  14. (2009). Fiscal burden sharing in cross-border banking crises,
  15. (1991). Foreign bank activity in the United States: An analysis by country of origin,
  16. (2004). Gains in bank mergers: Evidence from bond markets,
  17. (2000). GDP growth is rate of real per capita GDP growth. GDP per capita is GDP per capita in thousands of constant
  18. (2000). GDP per capita is GDP per capita in thousands of constant
  19. (2000). Incentives for banking megamergers: What motives might regulators infer from event-study evidence?,
  20. (2007). International diversification gains and home bias in banking, IMF Working Papers 07/281, International Monetary Fund.
  21. (2011). International taxation and crossborder banking , European Banking Center Discussion Paper No.
  22. Kenichi und Beatrice Weder di Mauro, 2010, The value of the too-big-to-fail subsidy to financial institutions, in:
  23. (2004). Market discipline and deposit insurance,
  24. Min Max Foreign liabilities share
  25. (1995). Motivations for bank mergers and acquisitions: enhancing the deposit insurance put option versus earnings diversification,
  26. (2011). Regulatory arbitrage and international bank flows, forthcoming in
  27. (1963). Seasonal adjustment of economic time series,
  28. (2010). Structural indicators for the EU banking sector.
  29. (2003). Testing for market discipline in the European banking industry: evidence from subordinated debt issues,
  30. (2010). The architecture of global banking: from international to multinational?, BIS Quarterly Review
  31. (2010). The corporate structure of international financial conglomerates: Complexity and its implications for safety and soundness,
  32. (1998). The cost of market versus regulatory discipline in banking,
  33. (2000). The dependent variable is Interest expense, which is interest expense over bank liabilities excluding non-interest bearing debt. Assets is the natural logarithm of total assets in constant
  34. (1996). The determination of foreign banking location,
  35. (2002). The effects of cross-border bank mergers on bank risk and value,
  36. (2003). The informational content and accuracy of implied asset volatility as a measure of total firm risk,
  37. (2005). Where do banks expand abroad? An empirical analysis,
  38. (2011). Working document technical details of a possible EU framework for bank recovery and resolution, Consultation Paper, DG Internal Market and Services.

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.