IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/15447.html
   My bibliography  Save this paper

Evidence of Regulatory Arbitrage in Cross-Border Mergers of Banks in the EU

Author

Listed:
  • Santiago Carbo-Valverde
  • Edward J. Kane
  • Francisco Rodriguez-Fernandez

Abstract

Banks are in the business of taking calculated risks. Expanding the geographic footprint of an organization's profit-making activities changes the geographic pattern of its exposure to loss in ways that are hard for regulators and supervisors to observe. This paper tests and confirms the hypothesis that differences in the character of safety-net benefits that are available to banks in individual EU countries help to explain the nature of cross-border merger activity. If they wish to protect taxpayers from potentially destabilizing regulatory arbitrage, central bankers need to develop statistical procedures for assessing supervisory strength and weakness in partner countries. We believe that the methods and models used here can help in this task.

Suggested Citation

  • Santiago Carbo-Valverde & Edward J. Kane & Francisco Rodriguez-Fernandez, 2009. "Evidence of Regulatory Arbitrage in Cross-Border Mergers of Banks in the EU," NBER Working Papers 15447, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15447
    Note: CF
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w15447.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Carletti, Elena & Hartmann, Philipp & Ongena, Steven, 2007. "The economic impact of merger control: what is special about banking?," Working Paper Series 786, European Central Bank.
    2. Edward J. Kane, 2000. "Incentives for banking megamergers: what motives might regulators infer from event-study evidence?," Proceedings, Federal Reserve Bank of Cleveland, pages 671-705.
    3. Santiago Carbo-Valverde & Edward Kane & Francisco Rodriguez-Fernandez, 2008. "Evidence of Differences in the Effectiveness of Safety-Net Management in European Union Countries," Journal of Financial Services Research, Springer;Western Finance Association, vol. 34(2), pages 151-176, December.
    4. Buch, Claudia M. & DeLong, Gayle, 2008. "Do weak supervisory systems encourage bank risk-taking?," Journal of Financial Stability, Elsevier, vol. 4(1), pages 23-39, April.
    5. Vallascas, Francesco & Hagendorff, Jens, 2011. "The impact of European bank mergers on bidder default risk," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 902-915, April.
    6. Dirk Schoenmaker & Charles Goodhart, 2006. "Burden Sharing in a Banking Crisis in Europe," FMG Special Papers sp164, Financial Markets Group.
    7. Marcus, Alan J & Shaked, Israel, 1984. "The Valuation of FDIC Deposit Insurance Using Option-pricing Estimates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 446-460, November.
    8. Jin‐Chuan Duan, 1994. "Maximum Likelihood Estimation Using Price Data Of The Derivative Contract," Mathematical Finance, Wiley Blackwell, vol. 4(2), pages 155-167, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hagendorff, Jens & Hernando, Ignacio & Nieto, Maria J. & Wall, Larry D., 2012. "What do premiums paid for bank M&As reflect? The case of the European Union," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 749-759.
    2. Anjali Prashad, 2020. "Regulatory Arbitrage and Presence of Foreign Banks: Evidence from the Indian Banking Sector," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(3), pages 303-334, September.
    3. Ongena, Steven & Popov, Alexander & Udell, Gregory F., 2013. "“When the cat's away the mice will play”: Does regulation at home affect bank risk-taking abroad?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 727-750.
    4. Edward Kane, 2010. "Redefining and Containing Systemic Risk," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 38(3), pages 251-264, September.
    5. Christine M. Cumming & Robert A. Eisenbeis, 2010. "Resolving troubled systemically important cross-border financial institutions: is a new corporate organizational form required?," Staff Reports 457, Federal Reserve Bank of New York.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Santiago Carbo-Valverde & Edward J. Kane & Francisco Rodriguez-Fernandez, 2012. "Regulatory Arbitrage in Cross-Border Banking Mergers within the EU," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1609-1629, December.
    2. Carbó-Valverde, Santiago & Kane, Edward J. & Rodriguez-Fernandez, Francisco, 2013. "Safety-net benefits conferred on difficult-to-fail-and-unwind banks in the US and EU before and during the great recession," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1845-1859.
    3. Hagendorff, Jens & Hernando, Ignacio & Nieto, Maria J. & Wall, Larry D., 2012. "What do premiums paid for bank M&As reflect? The case of the European Union," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 749-759.
    4. Weiß, Gregor N.F. & Neumann, Sascha & Bostandzic, Denefa, 2014. "Systemic risk and bank consolidation: International evidence," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 165-181.
    5. Molyneux, Philip & Schaeck, Klaus & Zhou, Tim Mi, 2014. "‘Too systemically important to fail’ in banking – Evidence from bank mergers and acquisitions," Journal of International Money and Finance, Elsevier, vol. 49(PB), pages 258-282.
    6. Jens Hagendorff & Maria J. Nieto & Larry D. Wall, 2012. "The safety and soundness effects of bank M&A in the EU," FRB Atlanta Working Paper 2012-13, Federal Reserve Bank of Atlanta.
    7. Ongena, Steven & Popov, Alexander & Udell, Gregory F., 2013. "“When the cat's away the mice will play”: Does regulation at home affect bank risk-taking abroad?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 727-750.
    8. Laeven, Luc, 2000. "Banking risks around the world - the implicit safety net subsidy approach," Policy Research Working Paper Series 2473, The World Bank.
    9. Reint Gropp & Marco Lo Duca & Jukka Vesala, 2009. "Cross-Border Bank Contagion in Europe," International Journal of Central Banking, International Journal of Central Banking, vol. 5(1), pages 97-139, March.
    10. Jens Hagendorff & Maria J. Nieto, 2015. "The Safety and Soundness Effects of Bank M&A in the EU: Does Prudential Regulation Have any Impact?," European Financial Management, European Financial Management Association, vol. 21(3), pages 462-490, June.
    11. Barbara Casu & Panagiotis Dontis†Charitos & Sotiris Staikouras & Jonathan Williams, 2016. "Diversification, Size and Risk: the Case of Bank Acquisitions of Nonbank Financial Firms," European Financial Management, European Financial Management Association, vol. 22(2), pages 235-275, March.
    12. Phil Molyneux & Klaus Schaeck & Tim Zhou, 2011. "‘Too Systemically Important to Fail’ in Banking," Working Papers 11011, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    13. Farzana Chowdhury & David B. Audretsch, 2021. "Do corruption and regulations matter for home country nascent international entrepreneurship?," The Journal of Technology Transfer, Springer, vol. 46(3), pages 720-759, June.
    14. 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.
    15. Michael Falkenheim & George Pennacchi, 2003. "The Cost of Deposit Insurance for Privately Held Banks: A Market Comparable Approach," Journal of Financial Services Research, Springer;Western Finance Association, vol. 24(2), pages 121-148, October.
    16. Laeven, Luc, 2002. "Pricing of deposit insurance," Policy Research Working Paper Series 2871, The World Bank.
    17. Andriosopoulos, Kostas & Chan, Ka Kei & Dontis-Charitos, Panagiotis & Staikouras, Sotiris K., 2017. "Wealth and risk implications of the Dodd-Frank Act on the U.S. financial intermediaries," Journal of Financial Stability, Elsevier, vol. 33(C), pages 366-379.
    18. Brealey, Richard A & Cooper, Ian A & Kaplanis, Evi, 2019. "The effect of mergers on US bank risk in the short run and in the long run," Journal of Banking & Finance, Elsevier, vol. 108(C).
    19. Elyas Elyasiani & Sotiris K. Staikouras & Panagiotis Dontis-Charitos, 2016. "Cross-Industry Product Diversification and Contagion in Risk and Return: The case of Bank-Insurance and Insurance-Bank Takeovers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(3), pages 681-718, September.
    20. Chuang-Chang Chang & Ruey-Jenn Ho, 2017. "Risk-Shifting Behavior At Commercial Banks With Different Deposit Insurance Assessments: Further Evidence From U.S. Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 40(1), pages 55-80, March.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G2 - Financial Economics - - Financial Institutions and Services
    • K2 - Law and Economics - - Regulation and Business Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15447. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.