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.
|Place of Publication||Tilburg|
|Number of pages||43|
|Publication status||Published - 2012|
|Name||CentER Discussion Paper|
- Bank regulation
- bank resolution
- cross-border banking
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.