Should cross-border banking benefit from the financial safety net?

Ata Bertay, Asli Demirguc-Kunt, Harry Huizinga

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Using bank-level data from 84 countries, we find that a higher degree of bank internationalization is associated with higher interest expenses. Internationalization is proxied by a bank's share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration. Bank interest expenses rise relatively more with internationalization if the bank is underperforming or headquartered in a country with weak public finances, and especially at times of weak world output growth. These results suggest that liability holders of distressed internationalized banks expect less from the financial safety net since lack of an efficient recovery and resolution regime for international banks can make their insolvency very costly to deal with.
Original languageEnglish
Pages (from-to)51-67
JournalJournal of Financial Intermediation
Volume27
DOIs
Publication statusPublished - Jul 2016

Fingerprint

Cross-border
Financial safety net
Banking
Liability
Internationalization
Expenses
Headquarters
Public finance
Herfindahl index
Output growth
Insolvency

Keywords

  • bank bailouts
  • international burden sharing
  • cross-border banking

Cite this

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title = "Should cross-border banking benefit from the financial safety net?",
abstract = "Using bank-level data from 84 countries, we find that a higher degree of bank internationalization is associated with higher interest expenses. Internationalization is proxied by a bank's share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration. Bank interest expenses rise relatively more with internationalization if the bank is underperforming or headquartered in a country with weak public finances, and especially at times of weak world output growth. These results suggest that liability holders of distressed internationalized banks expect less from the financial safety net since lack of an efficient recovery and resolution regime for international banks can make their insolvency very costly to deal with.",
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Should cross-border banking benefit from the financial safety net? / Bertay, Ata; Demirguc-Kunt, Asli; Huizinga, Harry.

In: Journal of Financial Intermediation, Vol. 27, 07.2016, p. 51-67.

Research output: Contribution to journalArticleScientificpeer-review

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T1 - Should cross-border banking benefit from the financial safety net?

AU - Bertay, Ata

AU - Demirguc-Kunt, Asli

AU - Huizinga, Harry

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AB - Using bank-level data from 84 countries, we find that a higher degree of bank internationalization is associated with higher interest expenses. Internationalization is proxied by a bank's share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration. Bank interest expenses rise relatively more with internationalization if the bank is underperforming or headquartered in a country with weak public finances, and especially at times of weak world output growth. These results suggest that liability holders of distressed internationalized banks expect less from the financial safety net since lack of an efficient recovery and resolution regime for international banks can make their insolvency very costly to deal with.

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KW - international burden sharing

KW - cross-border banking

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