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Is the financial safety net a barrier to cross-border banking ?

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  • Bertay, Ata Can
  • Demirguc-Kunt Asli
  • Huizinga, Harry

Abstract

A bank's interest expenses rise with its degree of internationalization, measured by its share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration, especially if the bank is performing badly. The results in this paper suggest that an international bank's cost of funds raised through a foreign subsidiary is 1.5-2.4 percent higher than the cost of funds for a purely domestic bank. That is a sizeable difference, given that the overall mean cost of funds is 3.3 percent. These results can be explained by limited incentives for national authorities to bail out an international bank, as well as an inefficient recovery and resolution process for international banks. In any event, a less reliable financial safety net appears to be a barrier to cross-border banking.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5947.

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Date of creation: 01 Jan 2012
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Handle: RePEc:wbk:wbrwps:5947

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Keywords: Banks&Banking Reform; Debt Markets; Access to Finance; Emerging Markets; Economic Theory&Research;

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References

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  1. Charles Goodhart & Dirk Schoenmaker, 2009. "Fiscal Burden Sharing in Cross-Border Banking Crises," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 5(1), pages 141-165, March.
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Citations

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Cited by:
  1. Anginer, Deniz & Demirguc-Kunt, Asli & Zhu, Min, 2014. "How does competition affect bank systemic risk?," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 23(1), pages 1-26.
  2. Bignon, V. & Breton, R. & Rojas Breu, M., 2013. "Currency Union with and without Banking Union," Working papers, Banque de France 450, Banque de France.
  3. Anginer, Deniz & Demirguc-Kunt, Asli, 2014. "Bank capital and systemic stability," Policy Research Working Paper Series 6948, The World Bank.

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