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

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

Have European Banks Actually Changed Since the Crisis? An Undated Assessment of Their Main Structural Characteristics

This paper documents trends in key bank variables over the 2003-2016 period for the set of banks that the ECB directly supervises as of January 1, 2017. A range of variables is considered that together indicate to what extent banks have been moving in the direction of better performance and greater stability. We examine variables related to bank profitability, activity mix, size, balance sheet composition, and loan impairment. The identified trends provide a mixed picture of whether banks have been moving in the right direction since the start of the crisis

Leverage, bank employee compensation and institutions

This paper investigates the empirical relationship between financial structure and employee compensation in the banking industry. Using an international panel of banks, we show that well-capitalized banks pay higher wages to their employees. Our results are robust to changes in measurement, model specification and estimation methods. In order to account for the positive association between bank capital and employee compensation, we illustrate a stylized 3-period model and show that well-capitalized banks have incentives to pay higher wages to induce monitoring. Such monitoring rents of employees at capitalized banks are expected to be higher in societies with weak institutions. Further empirical analysis shows that the weaker is institutional quality of a country the stronger is the positive relationship between bank capital and wages - supporting our theoretical conjectures

Securitization and economic activity: The credit composition channel

Due to copyright restrictions, the access to the full text of this article is only available via subscription.Using an international panel of 104 countries over the period 1995–2012, we analyze the relationship between country-level securitization and economic activity. Our findings suggest that securitization is negatively related to various proxies of economic activity – even prior to the crisis of 2007–2009. We explain this finding as the results of securitization spurring consumption at the expense of investment and capital formation. Consistent with this, we find that securitization of household loans is negatively associated with economic activity, whereas business securitization displays a weak positive association with it, and that household securitization increases an economy's consumption-investment ratio. Our results inform recent initiatives aimed at reviving securitization markets, as they indicate that the impact of securitization crucially depends on the underlying collateral

Cross-border banking in EMDEs: trends, scale, and policy implications

Cross-border banking in emerging markets and developing economies has expanded across most World Bank regions and has become large relative to some home and host economies. This paper analyzes recent trends of bank activities of financial groups headquartered in 46 emerging markets and developing economies, as well as the ownership structure of 51 prominent financial groups from emerging markets and developing economies. The data suggest that cross-border groups in most regions have grown in size, geographical reach, range of activities, and group complexity. The increasing relevance and complexity of cross-border banking pose challenges for policy makers in home and host jurisdictions as well as for the groups themselves to maximize the benefits of international financial integration while mitigating the risks. This balance calls for stronger consolidated supervision, more regional coordination and harmonization, and better group-wide corporate governance and controls. However, key challenges include institutional capacity constraints and political factors

Technological change and the finance wage premium

This paper utilizes a comprehensive worker-firm panel for the Netherlands to quantifythe impact of ICT capital-skill complementarity on the finance wage premium after the Global Financial Crisis. We apply additive worker and firm fixed-effect models to account for unobserved worker- and firm-heterogeneity and show that firm fixed-effects correct for a downward bias in the estimated finance wage premium. Our results indicate a sizable finance wage premium for both fixed- and full-hourly wages. The complementarity between ICT capital spending and the share of high skill workers at the firm-level reduces the full-wage premium considerably and the fixed-wage premium almost entirely

Bank capital regulation and risk after the Global Financial Crisis

We explore and summarize the evolution in bank capital regulations and bank risk after the global financial crisis. Using a new survey of bank regulation and supervision covering more than 120 economies, we show that regulatory capital increased, but some elements of capital regulations became laxer. Analyzing bank-level data, we also document the importance of defining bank regulatory capital narrowly as the quality of capital matters in reducing bank risk. This is particularly true for banks that have more discretion in the computation of regulatory capital ratios and are subject to weaker market monitoring