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Can Mergers in Europe Help Banks Hedge Against Macroeconomic Risk

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  • Pierre-Guillaume Méon
  • Laurent Weill

    ()
    (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg)

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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Bibliographic Info

Paper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg in its series Working Papers of LaRGE Research Center with number 2003-05.

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Date of creation: 2003
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Handle: RePEc:lar:wpaper:2003-05

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Keywords: European integration; risk sharing; regional specialization; portfolio diversification.;

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References

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  17. Cybo-Ottone, Alberto & Murgia, Maurizio, 2000. "Mergers and shareholder wealth in European banking," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 831-859, June.
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