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Is the Financial Safety Net a Barrier to Cross-Border Banking?

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  • Bertay, Ata Can
  • Demirguc-Kunt, Asli
  • Huizinga, Harry

Abstract

A bank’s interest expenses are found to increase with its degree of internationalization as proxied by its share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration, especially if the bank is performing badly. Our benchmark estimation suggests that an international bank’s cost of funds raised through a foreign subsidiary is between 1.5% and 2.4% higher than the cost of funds for a purely domestic bank, which is a sizeable difference given an overall mean cost of funds of 3.3%. These results are consistent with limited incentives for national authorities to bail out an international bank, but also with an international bank recovery and resolution process that is inefficient. In any event, the operation of the financial safety net appears to be a barrier to cross-border banking.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8712.

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Date of creation: Dec 2011
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Handle: RePEc:cpr:ceprdp:8712

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Keywords: Bank bailouts; Cross-border banking; International burden sharing;

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Citations

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Cited by:
  1. Anginer, Deniz & Demirguc-Kunt, Asli & Zhu, Min, 2014. "How does competition affect bank systemic risk?," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 1-26.
  2. Bignon, Vincent & Breton, Régis & Rojas Breu, Mariana, 2013. "Currency Union with and without Banking Union," Economics Papers from University Paris Dauphine 123456789/12105, Paris Dauphine University.
  3. Anginer, Deniz & Demirguc-Kunt, Asli, 2014. "Bank capital and systemic stability," Policy Research Working Paper Series 6948, The World Bank.

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