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Bank Risk-Taking Abroad: Does Home-Country Regulation and Supervision Matter


Author Info

  • Ongena, S.
  • Popov, A.
  • Udell, G.F.

    (Tilburg University, Center for Economic Research)


This paper provides the first empirical evidence on how home-country regulation and supervision affects bank risk-tailing in host-country markets. We analyze lending by 136 banks to 8,253 firms in 1,513 different localities across 13 countries. We find strong evidence that laxer regulatory restrictions in the home country are associated with higher loan rejection rates by banks in host-country markets, but that the resulting loans are mostly to small, unaudited, nonexporting, and innovative firms. The results are stronger when banks are less efficiently supervised at home, and they are observed independently from the effect that bank balance sheet have on lending. These findings imply that loose home-country regulation and supervision are associated with important negative externalities for the host-country in terms of more risk-taking by cross-border banks.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-032.

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Date of creation: 2011
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Handle: RePEc:dgr:kubcen:2011032

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Keywords: bank regulation; cross-border financial institutions; financial risk;

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  1. Ralph De Haas & Iman Van Lelyveld, 2008. "Internal capital markets and lending by multinational bank subsidiaries," Working Papers 105, European Bank for Reconstruction and Development, Office of the Chief Economist.
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