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Risk and the Corporate Structure of Banks

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  • International Monetary Fund

Abstract

We identify different sources of risk as important determinants of banks'' corporate structures when expanding into new markets. Subsidiary-based corporate structures benefit from greater protection against economic risk because of affiliate-level limited liability, but are more exposed to the risk of capital expropriation than are branches. Thus, branch-based structures are preferred to subsidiary-based structures when expropriation risk is high relative to economic risk, and vice versa. Greater cross-country risk correlation and more accurate pricing of risk by investors reduce the differences between the two structures. Furthermore, the corporate structure affects bank risk taking and affiliate size.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/40.

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Length: 26
Date of creation: 01 Feb 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/40

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Keywords: Capital; Credit risk; Economic models; Financial risk; Foreign direct investment; International banking; subsidiaries; banking; bank risk; capital markets; deposit insurance; bank risk taking; bank liabilities; capital requirement; bank assets; capital structure; bank branches; capital regulation; capital adequacy; bank capital; capital adequacy ratio; bank holding companies; bank profits; moral hazard; bank entry; capital market; cost of capital; capital controls; bank holding; bank creditors; inflation rate; foreign exchange; banking markets; bank responses; bank structures; bank insolvency; minimum capital requirement; banking crises; bank supervision; banking structures; bank deposits; probability of default; small bank; subordinated debt; capital control; banks ? liabilities; recapitalization; bank mergers; basel accord; bank credit; credit market; current account balance; bank monitoring; bank crisis;

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Cited by:
  1. Giovanni Dell'Ariccia & Robert Marquez & Luc Laeven, 2010. "Monetary Policy, Leverage, and Bank Risk-Taking," IMF Working Papers 10/276, International Monetary Fund.
  2. Chen , Yehning & Hasan, Iftekhar, 2011. "Subordinated debt, market discipline, and bank risk," Research Discussion Papers, Bank of Finland 20/2011, Bank of Finland.
  3. Diemo Dietrich & Uwe Vollmer, 2006. "Banks’ Internationalization Strategies: The Role of Bank Capital Regulation," IWH Discussion Papers, Halle Institute for Economic Research 18, Halle Institute for Economic Research.
  4. Eugenio Cerutti, 2013. "Banks’ Foreign Credit Exposures and Borrowers’ Rollover Risks Measurement, Evolution and Determinants," IMF Working Papers 13/9, International Monetary Fund.
  5. Niepmann, Friederike, 2013. "Banking across borders," Discussion Papers 19/2013, Deutsche Bundesbank, Research Centre.
  6. M. Levati & Jianying Qiu & Prashanth Mahagaonkar, 2012. "Testing the Modigliani-Miller theorem directly in the lab," Experimental Economics, Springer, Springer, vol. 15(4), pages 693-716, December.
  7. Elisa Luciano & Clas Wihlborg, 2013. "The Organization of Bank Affiliates; A Theoretical Perspective on Risk and Efficiency," Carlo Alberto Notebooks, Collegio Carlo Alberto 322, Collegio Carlo Alberto.
  8. Claudia Curi & Ana Lozano-Vivas & Valentin Zelenyuk, 2014. "Foreign bank diversification and efficiency prior to and during the financial crisis: Does one business model fit all?," BEMPS - Bozen Economics & Management Paper Series, School of Economics and Management at the Free University of Bozen BEMPS18, School of Economics and Management at the Free University of Bozen.
  9. Diemo Dietrich & Tobias Knedlik & Axel Lindner, 2011. "Central and Eastern European countries in the global financial crisis: a typical twin crisis?," Post-Communist Economies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 23(4), pages 415-432, April.
  10. Lin, Jane-Raung & Chung, Huimin & Hsieh, Ming-Hsiang & Wu, Soushan, 2012. "The determinants of interest margins and their effect on bank diversification: Evidence from Asian banks," Journal of Financial Stability, Elsevier, Elsevier, vol. 8(2), pages 96-106.

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