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Foreign banks, corporate strategy and financial stability: lessons from the river plate

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Author Info

  • Michael Brei

    (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense)

  • Carlos Winograd

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, Université d'Evry-Val d'Essonne - Université d'Evry-Val d'Essonne, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA))

Abstract

This paper analyzes the risk taking of branches and subsidiaries of international bank holding institutions from the perspective of host country regulators in two Latin American financial systems: Argentina and Uruguay. Using both theory and empirics, we analyze differences in the risk attitudes of these institutions in the run up to the major financial crises of 2001-02. The empirical part of this paper is based on a rich bank-level dataset on corporate structures, balance sheets, and ownership of banks. We find that foreign banks branches have taken on fewer risks than subsidiaries and relate this to differences in the legal responsibility of parent banks. This research not only shows original results concerning banks corporate strategies in the face of country risk, but also contributes to the debate on appropriate banking regulation.

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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number halshs-00703738.

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Date of creation: Jun 2012
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Handle: RePEc:hal:psewpa:halshs-00703738

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00703738
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Related research

Keywords: Financial Crises ; Argentina ; Uruguay ; Bank Corporate;

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References

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  1. Charles M. Kahn & Andrew Winton, 2002. "Moral hazard and optimal subsidiary structure for financial institutions," Proceedings 808, Federal Reserve Bank of Chicago.
  2. Benjamin M. Tabak & Dimas M. Fazio & Daniel O. Cajueiro, 2010. "The Effects of Loan Portfolio Concentration on Brazilian Banks' Return and Risk," Working Papers Series 215, Central Bank of Brazil, Research Department.
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  9. Gyongyi Loranth & Alan Morrison, 2003. "Multinational Bank Capital Regulation with Deposit Insurance and Diversification Effects," OFRC Working Papers Series 2003fe11, Oxford Financial Research Centre.
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  12. Adolfo Barajas & Emiliano Basco & V Hugo Juan-Ram�n & Carlos Quarracino, 2007. "Banks During the Argentine Crisis: Were They All Hurt Equally? Did They All Behave Equally?," IMF Staff Papers, Palgrave Macmillan, vol. 54(4), pages 621-662, November.
  13. Cerutti, Eugenio & Dell'Ariccia, Giovanni & Martinez Peria, Maria Soledad, 2007. "How banks go abroad: Branches or subsidiaries?," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1669-1692, June.
  14. Charles W. Calomiris & Andrew Powell, 2000. "Can Emerging Market Bank Regulators Establish Credible Discipline? The Case of Argentina, 1992-1999," NBER Working Papers 7715, National Bureau of Economic Research, Inc.
  15. Dell'Ariccia, Giovanni & Marquez, Robert, 2006. "Competition among regulators and credit market integration," Journal of Financial Economics, Elsevier, vol. 79(2), pages 401-430, February.
  16. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
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