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Does regulation at home affect bank risk-taking abroad?

Author

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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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    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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