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Cross-border banking on the two sides of the Atlantic: does it have an impact on bank crisis management?

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Abstract

In the United States and the European Union (EU), political incentives to oppose cross-border banking have been strong in spite of the measurable benefits to the real economy from breaking down geographic barriers. Even a federal-level supervisor and safety net are not by themselves sufficient to incentivizing cross-border banking although differences in the institutional set-up are reflected in the way the two areas responded to the crisis. The U.S. response was a coordinated response, and the cost of resolving banks was borne at the national level. Moreover, the Federal Deposit Insurance Corporation (FDIC) could market failed banks to other banks irrespective of state boundaries, reducing the cost of the crisis to the U.S. economy and the sovereign finances. In the EU, the crisis resulted in financial market fragmentation and unbearable costs to some sovereigns. Moreover, the FDIC could market failed banks to other banks irrespective of state boundaries, reducing the cost of the crisis to the U.S. economy and the sovereign finances. In the EU, the crisis resulted in financial market fragmentation and unbearable costs to some sovereigns.

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  • Nieto, Maria J. & Wall, Larry D., 2015. "Cross-border banking on the two sides of the Atlantic: does it have an impact on bank crisis management?," FRB Atlanta Working Paper 2015-11, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedawp:2015-11
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    1. Hernando, Ignacio & Nieto, Mara J. & Wall, Larry D., 2009. "Determinants of domestic and cross-border bank acquisitions in the European Union," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1022-1032, June.
    2. Charles W. Calomiris & Stephen H. Haber, 2015. "Fragile by Design: The Political Origins of Banking Crises and Scarce Credit," Economics Books, Princeton University Press, edition 1, number 10177-2.
    3. Tara Rice & Philip E. Strahan, 2010. "Does Credit Competition Affect Small‐Firm Finance?," Journal of Finance, American Finance Association, vol. 65(3), pages 861-889, June.
    4. Daniel C. Hardy & María J. Nieto, 2011. "Cross-border coordination of prudential supervision And deposit guarantees," Working Papers 1126, Banco de España;Working Papers Homepage.
    5. María J. Nieto, 2010. "A Single Financial Market and Multiple Safety-Net Regulators: The Case of the European Union," Chapters,in: The Financial and Economic Crises, chapter 9 Edward Elgar Publishing.
    6. María Nieto & Garry J. Schinasi, 2007. "EU Framework for Safeguarding Financial Stability; Towards an Analytical Benchmark for Assessing its Effectiveness," IMF Working Papers 07/260, International Monetary Fund.
    7. Donald T. Savage, 1993. "Interstate banking: a status report," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 1075-1089.
    8. Gillian G.H. Garcia & Rosa M. Lastra & María J. Nieto, 2009. "Bankruptcy and reorganization procedures for cross-border banks in the EU: Towards an integrated approach to the reform of the EU safety net," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 17(3), pages 240-276, July.
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    10. Hardy, Daniel C. & Nieto, Maria J., 2011. "Cross-border coordination of prudential supervision and deposit guarantees," Journal of Financial Stability, Elsevier, vol. 7(3), pages 155-164, August.
    11. Christoph Walkner & Jean-Pierre Raes, 2005. "Integration and consolidation in EU banking - an unfinished business," European Economy - Economic Papers 2008 - 2015 226, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    12. Emilia Bonaccorsi Di Patti & Giorgio Gobbi, 2007. "Winners or Losers? The Effects of Banking Consolidation on Corporate Borrowers," Journal of Finance, American Finance Association, vol. 62(2), pages 669-695, April.
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    Cited by:

    1. Herzberg, Valerie & McQuade, Peter, 2018. "International bank flows and bank business models since the crisis," Financial Stability Notes 5/FS/18, Central Bank of Ireland.
    2. Herzberg, Valerie & McQuade, Peter, 2018. "International bank flows and bank business models since the crisis," Financial Stability Notes 05-18, Central Bank of Ireland.

    More about this item

    Keywords

    cross-border banking; financial crisis; bankruptcy; European Union; United States;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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