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Bankers without Borders? Implications of Ring-Fencing for European Cross-Border Banks

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Author Info

  • Yulia Makarova
  • Anna Ilyina
  • Christian Schmieder
  • Eugenio Cerutti

Abstract

This paper presents a stylized analysis of the effects of ring-fencing (i.e., different restrictions on cross-border transfers of excess profits and/or capital between a parent bank and its subsidiaries located in different jurisdictions) on cross-border banks. Using a sample of 25 large European banking groups with subsidiaries in Central, Eastern and Southern Europe (CESE), we analyze the impact of a CESE credit shock on the capital buffers needed by the sample banking groups under different forms of ring-fencing. Our simulations show that under stricter forms of ring-fencing, sample banking groups have substantially larger needs for capital buffers at the parent and/or subsidiary level than under less strict (or in the absence of any) ring-fencing.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/247.

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Length: 35
Date of creation: 01 Nov 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/247

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Keywords: Eastern Europe; Banks; Capital; Credit risk; International banking; Regional shocks; subsidiaries; banking; capital needs; capital adequacy; banking system; capital market; banking statistics; bank reports; capital markets; recapitalization; national bank; capital requirement; bank structures; bank capital; minimum capital requirement; banking sector; capital adequacy ratios; credit policy; tier 1 capital; banking activities; banking sector assets; bank solvency; bank loans; banks ? balance sheets; banking system assets; bank subsidiaries; subordinated debt; return on assets; bank regulators; bankers; bank data; banking regulation; banking sectors; loan loss reserve; government bonds; external capital; bank groups; bank losses; bank exposures; capital control; joint stock;

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References

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  1. Zsófia Arvai & Karl Driessen & Ínci Ötker-Robe, 2009. "Regional Financial Interlinkages and Financial Contagion within Europe," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 59(6), pages 522-540, December.
  2. Ralph de Haas & Iman van Lelyveld, 2006. "Internal Capital Markets and Lending by Multinational Bank Subsidiaries," DNB Working Papers, Netherlands Central Bank, Research Department 101, Netherlands Central Bank, Research Department.
  3. Cerutti, Eugenio & Dell'Ariccia, Giovanni & Martinez Peria, Maria Soledad, 2007. "How banks go abroad: Branches or subsidiaries?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 31(6), pages 1669-1692, June.
  4. Robert McCauley & Patrick McGuire & Goetz von Peter, 2010. "The architecture of global banking: from international to multinational?," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, March.
  5. Erik Berglof & Yevgeniya Korniyenko & Alexander Plekhanov & Jeromin Zettelmeyer, 2010. "Understanding the Crisis in Emerging Europe," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, Policy Research Institute, Ministry of Finance Japan, vol. 6(6), pages 985-1008, September.
  6. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers, Centre for Economic Performance, LSE dp0007, Centre for Economic Performance, LSE.
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Citations

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Cited by:
  1. D'Hulster, Katia, 2011. "Cross border banking supervision : incentive conflicts in supervisory information sharing between home and host supervisors," Policy Research Working Paper Series 5871, The World Bank.
  2. Ralph De Haas & Iman Van Lelyveld, 2011. "Multinational banks and the global financial crisis: weathering the perfect storm?," Working Papers, European Bank for Reconstruction and Development, Office of the Chief Economist 135, European Bank for Reconstruction and Development, Office of the Chief Economist.
  3. Eugenio Cerutti & Stijn Claessens & Patrick McGuire, 2012. "Systemic risk in global banking: what can available data tell us and what more data are needed?," BIS Working Papers 376, Bank for International Settlements.
  4. Bertay, Ata Can & Demirguc-Kunt Asli & Huizinga, Harry, 2012. "Is the financial safety net a barrier to cross-border banking ?," Policy Research Working Paper Series 5947, The World Bank.
  5. Eugenio Cerutti & Christian Schmieder, 2012. "The Need for "Un-consolidating" Consolidated Banks' Stress Tests," IMF Working Papers 12/288, International Monetary Fund.
  6. Eugenio Cerutti & Stijn Claessens & Patrick McGuire, 2012. "Systemic Risks in Global Banking: What Available Data Can Tell Us and What More Data Are Needed?," NBER Chapters, National Bureau of Economic Research, Inc, in: Risk Topography: Systemic Risk and Macro Modeling, pages 235-260 National Bureau of Economic Research, Inc.
  7. Alexis Derviz & Jakub Seidler, 2012. "Coordination Incentives in Cross-Border Macroprudential Regulation," Working Papers, Czech National Bank, Research Department 2012/08, Czech National Bank, Research Department.
  8. Ralph De Haas & Yevgeniya Korniyenko & Elena Loukoianova & Alexander Pivovarsky, 2012. "Foreign Banks and the Vienna Initiative: Turning Sinners into Saints?," Mo.Fi.R. Working Papers, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences 62, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  9. Nicolas Arregui & Mohamed Norat & Antonio Pancorbo & Jodi G. Scarlata & Eija Holttinen & Fabiana Melo & Jay Surti & Christopher Wilson & Rodolfo Wehrhahn & Mamoru Yanase, 2013. "Addressing Interconnectedness," IMF Working Papers 13/199, International Monetary Fund.
  10. Ralph De Haas & Yevgeniya Korniyenko & Alexander Pivovarsky & Elena Loukoianova, 2012. "Foreign Banks and the Vienna Initiative," IMF Working Papers 12/117, International Monetary Fund.

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