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Can mergers in Europe help banks hedge against macroeconomic risk?

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  • Pierre-Guillaume Meon
  • Laurent Weill

Abstract

This study investigates the motive of geographic risk diversification in the lending activity for bank mergers in the EU on a sample of large banking groups. Geographic diversification should allow banks to reduce their risk. It is observed that the loan portfolios of European banks are home-biased. The portfolio approach is applied to explore the risk-return efficiency of the locations of banks' activities. Mergers between pairs of banks are also studied. Evidence of the sub-optimality of the loan portfolios of European banks in terms of geographic risk diversification, and of the existence of potential gains from inter-country pair mergers is also provided.

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 15 (2005)
Issue (Month): 5 ()
Pages: 315-326

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Handle: RePEc:taf:apfiec:v:15:y:2005:i:5:p:315-326

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