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To Branch or not to Branch? A Quantitative Evaluation of the Consequences of Global Banks’ Organization

Author

Listed:
  • Jose Fillat

    (Federal Reserve Bank of Boston)

  • Arthur Smith

    (Boston University)

  • Stefania Garetto

    (Boston University)

Abstract

This paper starts by establishing a set of stylized facts about global banks with operations in the United States. First, we show evidence of selection into foreign markets: the parent banks of global conglomerates tend to be larger than national banks. Second, selection by size is related to the mode of foreign operations: foreign subsidiaries of global banks and their parents are systematically larger than foreign branches and their parents, in terms of deposits, loans, and overall assets. Third, the mode of foreign operations affects the response of global banks to shocks and how those shocks are transmitted across countries. To explain these facts, we develop a structural model global banking whose assumptions mimic the institutional details of the regulatory framework in the US. The model sheds light on the relationship between market access, regulation, and capital flows, and is used as a laboratory to perform counterfactual analysis on the effects of alternative regulatory policies.

Suggested Citation

  • Jose Fillat & Arthur Smith & Stefania Garetto, 2018. "To Branch or not to Branch? A Quantitative Evaluation of the Consequences of Global Banks’ Organization," 2018 Meeting Papers 1079, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:1079
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    References listed on IDEAS

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    1. Cao, Qingqing & Minetti, Raoul & Olivero, María Pía & Romanini, Giacomo, 2021. "Recessions and recoveries: Multinational banks in the business cycle," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 203-219.
    2. Mr. Eugenio M Cerutti & Haonan Zhou, 2018. "Cross-border Banking and the Circumvention of Macroprudential and Capital Control Measures," IMF Working Papers 2018/217, International Monetary Fund.

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