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Can mergers in Europe help banks hedge against macroeconomic risk?

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  • Pierre-Guillaume Méon
  • Laurent Weill

Abstract

This paper 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. We observe that the loan portfolios of European banks are home-biased. We apply the portfolio approach to explore the risk-return efficiency of the locations of banks’ activities. We also study mergers between pairs of banks. We provide 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.

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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/8440/1/pgm-0044.pdf
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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series DULBEA Working Papers with number in.

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Length: 27 p.
Date of creation: Feb 2005
Date of revision:
Publication status: Published by: DULBEA - Université libre de Bruxelles, Bruxelles
Handle: RePEc:dul:wpaper:05-08rs

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Keywords: bank mergers; risk diversification; European integration;

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References

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  1. Michelle Clark Neely & David C. Wheelock, 1997. "Why does bank performance vary across states?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 27-40.
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  13. H.P. Huizinga & J.H.M. Nelissen & R. Vander Vennet, 2001. "Efficiency Effects of Bank Mergers and Acquisitions," Tinbergen Institute Discussion Papers 01-088/3, Tinbergen Institute.
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  17. Altunbas, Y. & Gardener, E. P. M. & Molyneux, P. & Moore, B., 2001. "Efficiency in European banking," European Economic Review, Elsevier, vol. 45(10), pages 1931-1955, December.
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