IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Do weak supervisory systems encourage bank risk-taking?

  • Buch, Claudia M.
  • DeLong, Gayle

Weak bank supervision could give banks the ability to shift risk from themselves to supervisors. We use cross-border bank mergers as a natural experiment to test changes in risk and the impact of supervision. We examine cross-border bank mergers and find that the supervisory structures of the partners' countries influence changes in post-merger total risk. An acquirer from a country with strong supervision lowers total risk after a cross-border merger. However, total risk increases when the target bank is located in a country with relatively strong supervision. This result is consistent with strong host regulators limiting the risky activities of their local banks. Foreign-owned competitors could then engage in the risky projects, especially if the foreign banks' supervisors are not strong. An acquirer entering a country with strong supervision appears to shift risk back to its home country. The results suggest that bank supervisors can reduce total banking risk in their countries by being strong.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B7CRR-4RH94WW-1/1/670c0d0f24ca335245a401403ebb6cad
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 4 (2008)
Issue (Month): 1 (April)
Pages: 23-39

as
in new window

Handle: RePEc:eee:finsta:v:4:y:2008:i:1:p:23-39
Contact details of provider: Web page: http://www.elsevier.com/locate/jfstabil

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Barth, James R. & Caprio Jr, Gerard & Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank.
  2. Esty, Benjamin C. & Megginson, William L., 2003. "Creditor Rights, Enforcement, and Debt Ownership Structure: Evidence from the Global Syndicated Loan Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 37-60, March.
  3. Cerutti, Eugenio & Dell'Ariccia, Giovanni & Martinez Peria, Maria Soledad, 2005. "How banks go abroad : branches or subsidiaries ?," Policy Research Working Paper Series 3753, The World Bank.
  4. Buch, Claudia M. & DeLong, Gayle, 2004. "Cross-border bank mergers: What lures the rare animal?," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2077-2102, September.
  5. Repullo, Rafael, 2000. "A Model of Takeovers of Foreign Banks," CEPR Discussion Papers 2639, C.E.P.R. Discussion Papers.
  6. Armen Hovakimian & Edward Kane & Luc Laeven, 2003. "How Country and Safety-Net Characteristics Affect Bank Risk-Shifting," Journal of Financial Services Research, Springer, vol. 23(3), pages 177-204, June.
  7. Kose John & Anthony Saunders & Lemma W. Senbet, 1998. "A Theory of Bank Regulation and Management Compensation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-043, New York University, Leonard N. Stern School of Business-.
  8. Gianni De Nicolo, 2000. "Size, charter value and risk in banking: an international perspective," International Finance Discussion Papers 689, Board of Governors of the Federal Reserve System (U.S.).
  9. Amihud, Yakov & DeLong, Gayle L. & Saunders, Anthony, 2002. "The effects of cross-border bank mergers on bank risk and value," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 857-877, November.
  10. Arturo Bris & Christos Cabolis, 2002. "Corporate Governance Convergence by Contract: Evidence from Cross-Border Mergers," Yale School of Management Working Papers ysm293, Yale School of Management, revised 01 Jan 2003.
  11. Zarruk, Emilio R. & Madura, Jeff, 1992. "Optimal Bank Interest Margin under Capital Regulation and Deposit Insurance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 143-149, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:finsta:v:4:y:2008:i:1:p:23-39. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.