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Can mergers in Europe help banks hedge against macroeconomic risk?

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  • Pierre-Guillaume Méon
  • Laurent Weill

Abstract

This study 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. It is observed that the loan portfolios of European banks are home-biased. The portfolio approach is applied to explore the risk-return efficiency of the locations of banks' activities. Mergers between pairs of banks are also studied. 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 is also provided.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/8370.

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Date of creation: Mar 2005
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Publication status: Published in: Applied Financial Economics (2005) v.15 n° 5,p.315-326
Handle: RePEc:ulb:ulbeco:2013/8370

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