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Foreign banks, corporate strategy and financial stability: lessons from the river plate

  • Michael Brei

    (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense)

  • Carlos Winograd

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, Université d'Evry-Val d'Essonne - Université d'Evry-Val d'Essonne, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA))

This paper analyzes the risk taking of branches and subsidiaries of international bank holding institutions from the perspective of host country regulators in two Latin American financial systems: Argentina and Uruguay. Using both theory and empirics, we analyze differences in the risk attitudes of these institutions in the run up to the major financial crises of 2001-02. The empirical part of this paper is based on a rich bank-level dataset on corporate structures, balance sheets, and ownership of banks. We find that foreign banks branches have taken on fewer risks than subsidiaries and relate this to differences in the legal responsibility of parent banks. This research not only shows original results concerning banks corporate strategies in the face of country risk, but also contributes to the debate on appropriate banking regulation.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00703738.

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Date of creation: Jun 2012
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Handle: RePEc:hal:psewpa:halshs-00703738
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  1. Cerutti, Eugenio & Dell'Ariccia, Giovanni & Martinez Peria, Maria Soledad, 2005. "How banks go abroad : branches or subsidiaries ?," Policy Research Working Paper Series 3753, The World Bank.
  2. Boot, Arnoud W. A. & Schmeits, Anjolein, 2000. "Market Discipline and Incentive Problems in Conglomerate Firms with Applications to Banking," Journal of Financial Intermediation, Elsevier, vol. 9(3), pages 240-273, July.
  3. Adolfo Barajas & Emiliano Basco & V Hugo Juan-Ram�n & Carlos Quarracino, 2007. "Banks During the Argentine Crisis: Were They All Hurt Equally? Did They All Behave Equally?," IMF Staff Papers, Palgrave Macmillan, vol. 54(4), pages 621-662, November.
  4. Calzolari, Giacomo & Loranth, Gyongyi, 2005. "Regulation of multinational banks: a theoretical inquiry," Working Paper Series 0431, European Central Bank.
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  12. Dell'Ariccia, Giovanni & Marquez, Robert, 2006. "Competition among regulators and credit market integration," Journal of Financial Economics, Elsevier, vol. 79(2), pages 401-430, February.
  13. Cerasi, Vittoria & Daltung, Sonja, 2000. "The optimal size of a bank: Costs and benefits of diversification," European Economic Review, Elsevier, vol. 44(9), pages 1701-1726, October.
  14. Vicente Salas & Jesús Saurina, 2002. "Credit Risk in Two Institutional Regimes: Spanish Commercial and Savings Banks," Journal of Financial Services Research, Springer, vol. 22(3), pages 203-224, December.
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  16. Charles Kahn & Andrew Winton, 2004. "Moral Hazard and Optimal Subsidiary Structure for Financial Institutions," Journal of Finance, American Finance Association, vol. 59(6), pages 2531-2575, December.
  17. Calem, Paul & Rob, Rafael, 1999. "The Impact of Capital-Based Regulation on Bank Risk-Taking," Journal of Financial Intermediation, Elsevier, vol. 8(4), pages 317-352, October.
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