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Is the Financial Safety Net a Barrier to Cross-Border Banking?

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  • Bertay, Ata Can
  • Demirguc-Kunt, Asli
  • Huizinga, Harry

Abstract

A bank’s interest expenses are found to increase with its degree of internationalization as proxied by its share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration, especially if the bank is performing badly. Our benchmark estimation suggests that an international bank’s cost of funds raised through a foreign subsidiary is between 1.5% and 2.4% higher than the cost of funds for a purely domestic bank, which is a sizeable difference given an overall mean cost of funds of 3.3%. These results are consistent with limited incentives for national authorities to bail out an international bank, but also with an international bank recovery and resolution process that is inefficient. In any event, the operation of the financial safety net appears to be a barrier to cross-border banking.

Suggested Citation

  • Bertay, Ata Can & Demirguc-Kunt, Asli & Huizinga, Harry, 2011. "Is the Financial Safety Net a Barrier to Cross-Border Banking?," CEPR Discussion Papers 8712, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8712
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    References listed on IDEAS

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    Cited by:

    1. Vincent Bignon & Régis Breton & Mariana Rojas Breu, 2015. "Monetary Union with a Single Currency and Imperfect Credit Market Integration," FIW Working Paper series 153, FIW.
    2. Anginer, Deniz & Demirguc-Kunt, Asli & Zhu, Min, 2014. "How does competition affect bank systemic risk?," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 1-26.
    3. Bignon, V. & Breton, R. & Rojas Breu, M., 2013. "Currency Union with and without Banking Union," Working papers 450, Banque de France.
    4. Thorsten Beck & Michael Fuchs & Dorothe Singer & Makaio Witte, 2014. "Making Cross-Border Banking Work for Africa," World Bank Publications, The World Bank, number 20248, July.
    5. Berger, Allen N. & El Ghoul, Sadok & Guedhami , Omrane & Roman, Raluca, 2015. "Internationalization and bank risk," Research Working Paper RWP 15-8, Federal Reserve Bank of Kansas City.
    6. Anginer, Deniz & Demirguc-Kunt, Asli, 2014. "Bank capital and systemic stability," Policy Research Working Paper Series 6948, The World Bank.
    7. Schoenmaker, Dirk & Siegmann, Arjen, 2014. "Can European bank bailouts work?," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 334-349.
    8. repec:dau:papers:123456789/12105 is not listed on IDEAS

    More about this item

    Keywords

    Bank bailouts; Cross-border banking; International burden sharing;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • 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

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