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Regulatory Arbitrage and Loan Location Decisions by Multinational Banks

Author

Listed:
  • Asli Demirgüç-Kunt

    (Center for Global Development)

  • Bálint L. Horváth

    (University of Arizona)

  • Harry Huizinga

    (Tilburg University and CEPR)

Abstract

This paper examines the impact of international differences in capital regulation on multinational banks’ loan origination location decisions. International loan location decisions represent a key banking margin that has previously not been examined in the literature on regulatory arbitrage by banks. Our estimation relies on within-loan contribution variation in location options for individual multinational banks that participate in a syndicated loan. We examine how the loan location choice and the intensity of regulatory arbitrage are affected by borrower transparency. We find that greater borrower transparency to a local bank establishment makes loan location at this establishment more likely, and that regulatory arbitrage is more intense in the case of more transparent borrowers.

Suggested Citation

  • Asli Demirgüç-Kunt & Bálint L. Horváth & Harry Huizinga, 2023. "Regulatory Arbitrage and Loan Location Decisions by Multinational Banks," Working Papers 639, Center for Global Development.
    • Handle: RePEc:cgd:wpaper:639
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    Keywords

    Regulatory arbitrage; capital regulations; loan origination;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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