Supervising Cross-Border Banks: Theory, Evidence and Policy (Revised version of EBC Discussion Paper 2011-033)

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
PublisherEBC
Number of pages43
Volume2012-015
Publication statusPublished - 2012

Publication series

NameEBC Discussion Paper
Volume2012-015

Keywords

  • Bank regulation
  • bank resolution
  • cross-border banking

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