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International Banking and Liquidity Allocation

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  • Diemo Dietrich

    ()

  • Uwe Vollmer

    ()

Abstract

This paper studies how capital requirements influence a bank’s mode of entry into foreign financial markets. We develop a model of an internationally operating bank that creates and allocates liquidity across countries and argue that the advantage of multinational banking over offering cross-border financial services depends on the benefit and the cost of intimacy with local markets. The benefit is that it allows to create more liquidity. The cost is that it causes inefficiencies in internal capital markets, on which a multinational bank relies to allocate liquidity across countries. Capital requirements affect this trade-off by influencing the degree of inefficiency in internal capital markets.

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File URL: http://hdl.handle.net/10.1007/s10693-009-0074-7
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Bibliographic Info

Article provided by Springer in its journal Journal of Financial Services Research.

Volume (Year): 37 (2010)
Issue (Month): 1 (February)
Pages: 45-69

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Handle: RePEc:kap:jfsres:v:37:y:2010:i:1:p:45-69

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Web page: http://www.springerlink.com/link.asp?id=102934

Related research

Keywords: Financial integration; International banking; Capital regulation; Foreign direct investment; Incomplete contracts; G21; G28; F36; F23;

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Citations

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Cited by:
  1. Ralf Bebenroth & Diemo Dietrich & Uwe Vollmer, 2007. "Bank regulation and supervision in Japan and Germany: A comparison," Discussion Paper Series 211, Research Institute for Economics & Business Administration, Kobe University.
  2. Barba Navaretti, Giorgio & Calzolari, Giacomo & Levi, Micol & Pozzolo, Alberto, 2010. "Multinational Banking in Europe: Financial Stability and Regulatory Implications Lessons from the Financial Crisis," CEPR Discussion Papers 7823, C.E.P.R. Discussion Papers.
  3. Claudia M. Buch & Linda S. Goldberg, 2014. "International Banking and Liquidity Risk Transmission: Lessons from Across Countries," NBER Working Papers 20286, National Bureau of Economic Research, Inc.
  4. Dietrich, Diemo & Vollmer, Uwe, 2012. "Are universal banks bad for financial stability? Germany during the world financial crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 123-134.
  5. Diemo Dietrich & Tobias Knedlik & Axel Lindner, 2011. "Central and Eastern European countries in the global financial crisis: a typical twin crisis?," Post-Communist Economies, Taylor & Francis Journals, vol. 23(4), pages 415-432, April.

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