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Banks’ Internationalization Strategies: The Role of Bank Capital Regulation

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  • Diemo Dietrich
  • Uwe Vollmer

Abstract

This paper studies how capital requirements influence a bank’s mode of entry into foreign financial markets. We develop a model of an internationally operating bank that creates and allocates liquidity across countries and argue that the advantage of multinational banking over offering cross-border financial services depends on the benefit and the cost of intimacy with local markets. The benefit is that it allows to create more liquidity. The cost is that it causes inefficiencies in internal capital markets, on which a multinational bank relies to allocate liquidity across countries. Capital requirements affect this trade-off by influencing the degree of inefficiency in internal capital markets.

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Bibliographic Info

Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 18.

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Date of creation: Nov 2006
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Handle: RePEc:iwh:dispap:18-06

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Keywords: incomplete financial contracting; cross-border financial services; multinational banking; liquidity allocation; capital regulation;

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Citations

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Cited by:
  1. Ralf Bebenroth & Diemo Dietrich & Uwe Vollmer, 2007. "Bank regulation and supervision in Japan and Germany: A comparison," Discussion Paper Series 211, Research Institute for Economics & Business Administration, Kobe University.
  2. Giorgio Barba Navaretti & Giacomo Calzolari & Alberto Franco Pozzolo & Micol Levi, 2010. "Multinational Banking in Europe: Financial Stability and Regulatory Implications;Lessons from the Financial Crisis," Mo.Fi.R. Working Papers 40, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  3. Claudia M. Buch & Linda S. Goldberg, 2014. "International Banking and Liquidity Risk Transmission: Lessons from Across Countries," NBER Working Papers 20286, National Bureau of Economic Research, Inc.
  4. Dietrich, Diemo & Vollmer, Uwe, 2012. "Are universal banks bad for financial stability? Germany during the world financial crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 123-134.
  5. 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, vol. 23(4), pages 415-432, April.

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