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Regulatory Arbitrage and Cross-Border Syndicated Loans

Author

Listed:
  • Demirguc-Kunt,Asli
  • Horvath,Balint Laszlo
  • Huizinga,Harry P.

Abstract

This paper investigates how international regulatory and institutional differences affect lending in the cross-border syndicated loan market. Lending provided through a foreign subsidiary is subject to subsidiary-country regulation and institutional arrangements. Multinational banks'choices between loan origination through the parent bank or through a foreign subsidiary provide information about these banks'preferences to operate in countries with varying regulations and institutions. The results indicate that international banks have a tendency to switch loan origination toward countries with less stringent bank regulation and supervision consistent with regulatory arbitrage, but that they prefer to originate loans in countries with higher-quality institutions related to financial market monitoring, creditor rights, and the speed of contract enforcement.

Suggested Citation

  • Demirguc-Kunt,Asli & Horvath,Balint Laszlo & Huizinga,Harry P., 2019. "Regulatory Arbitrage and Cross-Border Syndicated Loans," Policy Research Working Paper Series 9037, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9037
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    File URL: http://documents.worldbank.org/curated/en/856421570624402799/pdf/Regulatory-Arbitrage-and-Cross-Border-Syndicated-Loans.pdf
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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