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Does Financial Integration Make Banks Act More Prudential? Regulation, Foreign Owned Banks, and the Lender-of-Last Resort

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  • Berger, Helge
  • Hefeker, Carsten

Abstract

We analyze whether financial integration will lead to lower national regulation of domestic banking activities. In our model, banks? efforts and public regulation can lower the probability of bankruptcy. We contrast the national case with an integrated banking market and find that banks will exert greater effort to monitor their foreign activities. Thus, financial integration may increase prudential behavior and regulation. We also discuss incentives for banks to organize their foreign holdings in branches or subsidiaries. We show that the absence of a common lender of last resort can reduce the probability of financial crisis. --

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Bibliographic Info

Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 339.

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Date of creation: 2006
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Handle: RePEc:zbw:hwwadp:339

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Keywords: Bank regulation; lender of last resort; European financial markets;

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  1. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(3), pages 401-19, June.
  2. Haizhou Huang & Charles Goodhart, 1999. "A Model of the Lender of Last Resort," FMG Discussion Papers, Financial Markets Group dp313, Financial Markets Group.
  3. Xavier Freixas & Bruno M. Parigi & Jean-Charles Rochet, 2003. "The lender of last resort: A 21st Century approach," Economics Working Papers 708, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Calzolari, Giacomo & Lóránth, Gyöngyi, 2004. "Regulation of Multinational banks: A Theoretical Inquiry," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4232, C.E.P.R. Discussion Papers.
  5. Sander Osterloo & Dirk Schoenmaker, 2004. "Financial Supervision in an Integrating Europe: Measuring Cross-Border Externalities," FMG Special Papers, Financial Markets Group sp156, Financial Markets Group.
  6. Holthausen, Cornelia & Rønde, Thomas, 2004. "Cooperation in international banking supervision," Working Paper Series, European Central Bank 0316, European Central Bank.
  7. Repullo, R., 2000. "A Model of Takeovers of Foreign Banks," Papers, Centro de Estudios Monetarios Y Financieros- 0015, Centro de Estudios Monetarios Y Financieros-.
  8. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series, European Central Bank 0035, European Central Bank.
  9. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank.
  10. Haizhou Huang & Charles Goodhart, 1999. "A Simple Model of an International Lender of Last Resort," FMG Discussion Papers, Financial Markets Group dp336, Financial Markets Group.
  11. Eduardo Levy Yeyati & Tito Cordella, 2004. "Country Insurance," IMF Working Papers 04/148, International Monetary Fund.
  12. Prati, A. & Schinasi, G.J., 1999. "Financial Stability in European Economic and Monetary Union," Princeton Studies in International Economics, International Economics Section, Departement of Economics Princeton University, 86, International Economics Section, Departement of Economics Princeton University,.
  13. Thordur Olafsson & Julia Majaha-Jartby, 2005. "Regional Financial Conglomerates," IMF Working Papers 05/124, International Monetary Fund.
  14. Ceyla Pazarbasioglu & Gudrun Johnsen & Paul Louis Ceriel Hilbers & Inci Ötker, 2005. "Assessing and Managing Rapid Credit Growth and the Role of Supervisory and Prudential Policies," IMF Working Papers 05/151, International Monetary Fund.
  15. Xavier Vives, 2001. "Restructuring Financial Regulation in the European Monetary Union," Journal of Financial Services Research, Springer, Springer, vol. 19(1), pages 57-82, February.
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Cited by:
  1. Koulovatianos, Christos & Schrder, Carsten & Schmidt, Ulrich, 2009. "Nonmarket Household Time and the Cost of Children," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 27, pages 42-51.

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