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Regulation of multinational banks: a theoretical inquiry

Author

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  • Calzolari, Giacomo
  • Loranth, Gyongyi

Abstract

This paper examines prudential regulation of a multinational bank (MNB hereafter) and shows how regulatory intervention depends on the liability structure and insurance arrangements for non local depositors (i.e. on the representation form for foreign units). Shared liability among the MNB's units gives higher incentives for regulatory intervention than when units are legally separate entities. Cross-border deposit insurance provides lower incentives to intervene than when the regulator only has to compensate local depositors. We study the impact of shared liability and deposit insurance arrangements on regulators' incentives to monitor and acquire information on MNB's activities. Furthermore, by describing regulatory intervention and monitoring we also draw implications on the MNB's preferences over the form representation for foreign units, and discuss the effects of regulators' behavior on both MNB's lobbying and international resources shifting. JEL Classification: L51, F23, G21, G28

Suggested Citation

  • Calzolari, Giacomo & Loranth, Gyongyi, 2005. "Regulation of multinational banks: a theoretical inquiry," Working Paper Series 431, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2005431
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp431.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    branch; multinational banks; prudential regulation; representation form; subsidiary;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • 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
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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