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Does regulation at home affect bank risk-taking abroad?

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  • Alexander Popov

Abstract

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

Suggested Citation

  • Alexander Popov, 2012. "Does regulation at home affect bank risk-taking abroad?," Research Bulletin, European Central Bank, vol. 16, pages 2-6.
    • Handle: RePEc:ecb:ecbrbu:2012:0016:1
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    File URL: http://www.ecb.europa.eu/pub/pdf/other/researchbulletin16en.pdf
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    References listed on IDEAS

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    1. Mr. Christopher Carroll & Mr. Martin Sommer & Mr. Jiri Slacalek, 2012. "Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects," IMF Working Papers 2012/219, International Monetary Fund.
    2. Günter Coenen & Christopher J. Erceg & Charles Freedman & Davide Furceri & Michael Kumhof & René Lalonde & Douglas Laxton & Jesper Lindé & Annabelle Mourougane & Dirk Muir & Susanna Mursula & Carlos d, 2012. "Effects of Fiscal Stimulus in Structural Models," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 22-68, January.
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    Cited by:

    1. Nettekoven, Zeynep Mualla, 2020. "Macroprudential institutions in Europe - what are the blind spots?," IPE Working Papers 147/2020, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    2. Nedelchev, Miroslav, 2015. "Coordination of banking regulation in the EU," MPRA Paper 66073, University Library of Munich, Germany, revised 2015.
    3. Leonardo Gambacorta & Adrian van Rixtel, 2013. "Structural bank regulation initiatives: approaches and implications," BANCARIA, Bancaria Editrice, vol. 6, pages 14-27, June.
    4. Galema, R. & Koetter, M., 2018. "Big fish in small banking ponds? Cost advantage and foreign affiliate presence," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 138-158.
    5. Lorenzo Esposito, 2014. "Con Annibale alle porte. L'internazionalizzazione del sistema bancario e il caso italiano," Moneta e Credito, Economia civile, vol. 67(266), pages 311-338.
    6. Financial Stability Committee, Task Force on cross-border Spillover Effects of macroprudential measures & Kok, Christoffer & Reinhardt, Dennis, 2020. "Cross-border spillover effects of macroprudential policies: a conceptual framework," Occasional Paper Series 242, European Central Bank.

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    More about this item

    Keywords

    bank regulation; financial risk;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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