Can mergers in Europe help banks hedge against macroeconomic risk?
This paper investigates the motive of geographic risk diversification in the lending activity for bank mergers in the EU on a sample of large banking groups. Geographic diversification should allow banks to reduce their risk. We observe that the loan portfolios of European banks are home-biased. We apply the portfolio approach to explore the risk-return efficiency of the locations of banks’ activities. We also study mergers between pairs of banks. We provide evidence of the sub-optimality of the loan portfolios of European banks in terms of geographic risk diversification, and of the existence of potential gains from inter-country pair mergers.
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|Date of creation:||Mar 2005|
|Date of revision:|
|Publication status:||Published in: Applied Financial Economics (2005) v.15 n° 5,p.315-326|
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