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Bankers Without Borders? Implications of Ring-Fencing for European Cross-Border Banks

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  • Ms. Yuliya Makarova
  • Ms. Anna Ilyina
  • Mr. Christian Schmieder
  • Mr. Eugenio M Cerutti

Abstract

This paper presents a stylized analysis of the effects of ring-fencing (i.e., different restrictions on cross-border transfers of excess profits and/or capital between a parent bank and its subsidiaries located in different jurisdictions) on cross-border banks. Using a sample of 25 large European banking groups with subsidiaries in Central, Eastern and Southern Europe (CESE), we analyze the impact of a CESE credit shock on the capital buffers needed by the sample banking groups under different forms of ring-fencing. Our simulations show that under stricter forms of ring-fencing, sample banking groups have substantially larger needs for capital buffers at the parent and/or subsidiary level than under less strict (or in the absence of any) ring-fencing.

Suggested Citation

  • Ms. Yuliya Makarova & Ms. Anna Ilyina & Mr. Christian Schmieder & Mr. Eugenio M Cerutti, 2010. "Bankers Without Borders? Implications of Ring-Fencing for European Cross-Border Banks," IMF Working Papers 2010/247, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/247
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    References listed on IDEAS

    as
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    Keywords

    WP; capital; banking group; group; bank;
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