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The Role Of Regulatory Arbitrage In U.S. Banks' International Flows: Bank‐Level Evidence

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  • Judit Temesvary

Abstract

I study the prevalence and profitability of regulatory arbitrage in U.S. banks' foreign activities. I analyze a publicly available bank‐level data set on bilateral lending flows to 75 countries over 2003–2013. U.S. banks' affiliates lend less to borrowers in host countries with stricter bank capital regulations, and are less likely to maintain affiliates in such countries. Banks substitute from (host‐regulated) affiliate toward (U.S.‐regulated) cross‐border lending in hosts with strict bank capital rules. This is particularly so for low‐capitalized banks with lower foreign ownership shares. Banks that reduce their exposure to stricter host capital rules are more profitable in foreign activities. (JEL F3, F4, G2)

Suggested Citation

  • Judit Temesvary, 2018. "The Role Of Regulatory Arbitrage In U.S. Banks' International Flows: Bank‐Level Evidence," Economic Inquiry, Western Economic Association International, vol. 56(4), pages 2077-2098, October.
    • Handle: RePEc:bla:ecinqu:v:56:y:2018:i:4:p:2077-2098
    DOI: 10.1111/ecin.12579
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    Cited by:

    1. Raphael Auer & Steven Ongena, 2016. "The countercyclical capital buffer and the composition of bank lending," BIS Working Papers 593, Bank for International Settlements.

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    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G2 - Financial Economics - - Financial Institutions and Services

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