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European Banks Straddling Borders: Risky or Rewarding?

Listed author(s):
  • Duijm, Patty
  • Schoenmaker, Dirk

Theory suggests that cross-border banking is beneficial as long as there is a non-perfect correlation across country-specific risks. Using a unique hand-collected dataset with cross-border loans for the 61 largest European banks, we find that cross-border banking in general decreases bank risk, and that the beneficial impact from cross-border banking increases when banks diversify more into countries with dissimilar economic and financial conditions. However, we find that banks do not fully utilize these diversification opportunities as banks mainly invest in countries that are economically more similar to their home country.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 12159.

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Date of creation: Jul 2017
Handle: RePEc:cpr:ceprdp:12159
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