Supervising Cross-Border Banks: Theory, Evidence and Policy (Revised version of CentER Discussion Paper 2011-127)

T.H.L. Beck, R.I. Todorov, W.B. Wagner

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Abstract

Abstract: This paper analyzes the distortions that banks’ cross-border activities, such as foreign assets, deposits and equity, can introduce into regulatory interventions. We find that while each individual dimension of cross-border activities distorts the incentives of a domestic regulator, a balanced amount of cross-border activities does not necessarily cause inefficiencies, as the various distortions can offset each other. Empirical analysis using bank-level data from the recent crisis provide support to our theoretical findings. Specifically, banks with a higher share of foreign deposits and assets and a lower foreign equity share were intervened at a more fragile state, reflecting the distorted incentives of national regulators. We discuss several implications for the supervision of cross-border banks in Europe.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Number of pages43
Volume2012-059
Publication statusPublished - 2012

Publication series

NameCentER Discussion Paper
Volume2012-059

Keywords

  • Bank regulation
  • bank resolution
  • cross-border banking

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    Beck, T. H. L., Todorov, R. I., & Wagner, W. B. (2012). Supervising Cross-Border Banks: Theory, Evidence and Policy (Revised version of CentER Discussion Paper 2011-127). (CentER Discussion Paper; Vol. 2012-059). Economics.