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Do Banks Benefit from Internationalization? Revisiting the Market Power--Risk Nexus

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  • Claudia M. Buch
  • Cathérine T. Koch
  • Michael Koetter

Abstract

We analyze the impact of bank internationalization on domestic market power (Lerner index) and risk for German banks. Risk is measured by the official declaration of regulatory authorities that a bank is distressed. We distinguish the volume of foreign assets, the number of foreign countries, and different modes of foreign entry. Our analysis has three main results. First, higher market power is associated with lower risk. Second, holding assets in many countries reduce market power at home, but banks with a higher share of foreign assets exhibit higher market power. Third, bank internationalization is only weakly related to bank risk. Copyright 2013, Oxford University Press.

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Bibliographic Info

Article provided by European Finance Association in its journal Review of Finance.

Volume (Year): 17 (2013)
Issue (Month): 4 ()
Pages: 1401-1435

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Handle: RePEc:oup:revfin:v:17:y:2013:i:4:p:1401-1435

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References

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  1. Pierre-Guillaume Méon & Laurent Weill, 2005. "Can mergers in Europe help banks hedge against macroeconomic risk?," ULB Institutional Repository 2013/8370, ULB -- Universite Libre de Bruxelles.
  2. Demirgüç-Kunt, AslI & Detragiache, Enrica & Tressel, Thierry, 2008. "Banking on the principles: Compliance with Basel Core Principles and bank soundness," Journal of Financial Intermediation, Elsevier, vol. 17(4), pages 511-542, October.
  3. Caminal, Ramon & Matutes, Carmen, 2002. "Market power and banking failures," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1341-1361, November.
  4. Rafael Repullo & David Martínez-Miera, 2008. "Does Competition Reduce The Risk Of Bank Failure?," Working Papers wp2008_0801, CEMFI.
  5. Juan Fernández De Guevara & Joaquín Maudos, 2007. "Explanatory Factors Of Market Power In The Banking System," Manchester School, University of Manchester, vol. 75(3), pages 275-296, 06.
  6. Gabriel Jiménez & Jose A. Lopez & Jesús Saurina, 2007. "How does competition impact bank risk-taking?," Working Paper Series 2007-23, Federal Reserve Bank of San Francisco.
  7. De Haas, Ralph & van Lelyveld, Iman, 2009. "Internal Capital Markets and Lending by Multinational Bank Subsidiaries," MPRA Paper 13164, University Library of Munich, Germany.
  8. Maudos, Joaquin & de Guevara, Juan Fernandez, 2007. "The cost of market power in banking: Social welfare loss vs. cost inefficiency," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2103-2125, July.
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Citations

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Cited by:
  1. Fritsch, Michael & Kritikos, Alexander S. & Pijnenburg, Katharina, 2013. "Business Cycles, Unemployment and Entrepreneurial Entry: Evidence from Germany," IZA Discussion Papers 7852, Institute for the Study of Labor (IZA).
  2. Linda S. Goldberg, 2013. "Banking globalization, transmission, and monetary policy autonomy," Staff Reports 640, Federal Reserve Bank of New York.
  3. Buch, Claudia M. & Goldberg, Linda S., 2014. "International banking and liquidity risk transmission: lessons from across countries," Staff Reports 675, Federal Reserve Bank of New York.
  4. Koetter, Michael, 2013. "Market structure and competition in German banking: Modules I and IV," Working Papers 06/2013, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
  5. Theoharry Grammatikos, & Nikolaos I. Papanikolaou, 2013. "What lies behind the (Too-Small-To-Survive) banks?," LSF Research Working Paper Series 13-12, Luxembourg School of Finance, University of Luxembourg.
  6. Linda S. Goldberg, 2013. "Banking Globalization, Transmission, and Monetary Policy Autonomy," NBER Working Papers 19497, National Bureau of Economic Research, Inc.
  7. Buch, Claudia M. & Neugebauer, Katja & Schröder, Christoph, 2013. "Changing forces of gravity: How the crisis affected international banking," Discussion Papers 48/2013, Deutsche Bundesbank, Research Centre.
  8. Efthyvoulou, Georgios & Yildirim, Canan, 2014. "Market power in CEE banking sectors and the impact of the global financial crisis," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 11-27.
  9. Hryckiewicz, Aneta, 2014. "Originators, traders, neutrals, and traditioners – various banking business models across the globe. Does the business model matter for financial stability?," MPRA Paper 55118, University Library of Munich, Germany.
  10. Francesco Marchionne & Alberto Zazzaro, 2013. "Rischio e concorrenza nel sistema bancario italiano durante la crisi finanziaria globale," Mo.Fi.R. Working Papers 86, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  11. Hakenes , Hendrik & Hasan, Iftekhar & Molyneux, Phil & Xie , Ru, 2014. "Small banks and local economic development," Research Discussion Papers 5/2014, Bank of Finland.
  12. Galema, Rients & Koetter, Michael & Liesegang, Caroline, 2013. "Cost leadership and bank internationalization," Discussion Papers 57/2013, Deutsche Bundesbank, Research Centre.

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