Does regulation at home affect bank risk-taking abroad?
Has banking integration increased risk-taking by foreign-owned banks that are exploiting regulatory differences between home and host countries? We provide the first empirical evidence that bank regulation is associated with cross-border spillover of risk through the lending activities of large multinational banks. Using micro data on business lending in 16 European countries, we find that lower barriers to entry and tighter restrictions on bank activities in domestic markets are associated with higher bank risk-taking abroad. This suggests that reducing the risktaking of the banking sector in one market may simply push banks to reallocate risk abroad. JEL Classification: G21, G28, G32
Volume (Year): 16 (2012)
Issue (Month): ()
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