Is the Financial Safety Net a Barrier to Cross-Border Banking?

Is the Financial Safety Net a Barrier to Cross-Border Banking?

A bank's interest expenses rise with its degree of internationalization, measured by its share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration, especially if the bank is performing bad...

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Bibliographic Details
Main Authors:	Bertay, Ata Can, Demirgüç-Kunt, Asli, Huizinga, Harry
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ARBITRAGE ASSET DIVERSIFICATION BAILOUT BALANCE SHEET BANK ACTIVITY BANK ASSET BANK ASSETS BANK BAILOUTS BANK CREDITORS BANK DEPOSIT BANK FAILURE BANK LOANS BANK MARKET BANK MERGERS BANK PROFITABILITY BANK REGULATION BANK RESTRUCTURING BANK RISK BANK SUPERVISION BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING MARKET BANKING MARKETS BANKING SECTOR BARRIER BASIS POINTS BENCHMARK BOND BOND HOLDERS BOND MARKETS BONDS BOOK VALUE CDS CENTRAL BANKING CHECKS CONFLICT OF INTEREST CONFLICTS OF INTEREST CONSUMER PRICE INFLATION COORDINATION FAILURE COST OF FUNDS COUNTRY FIXED EFFECTS CREDIT INSTITUTIONS CROSS-BORDER BANKING CURRENCY DEBENTURE DEBENTURES DEBT DEBT INTEREST DEBT ISSUES DEFAULT RISK DEPOSIT DEPOSIT INSTITUTION DEPOSIT INSURANCE DEPOSITOR DEPOSITORS DEPOSITS DEVELOPMENT POLICY DISTRESSED BANKS DIVIDEND DOMESTIC BANK DOMESTIC BANKS DOUBLE TAXATION DUMMY VARIABLE EARNINGS ECONOMIC INTEGRATION ECONOMIC POLICY ECONOMIC TIME SERIES ECONOMIES OF SCALE EUROPEAN CENTRAL BANK EXPENSE RATIO EXPENSE RATIOS EXPORTS EXTERNAL ASSETS EXTERNALITIES FINANCIAL CONGLOMERATES FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SAFETY FINANCIAL SAFETY NET FINANCIAL SAFETY NETS FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL SYSTEM FISCAL BURDEN FOREIGN BANK FOREIGN BANKS FOREIGN DIRECT INVESTMENT FOREIGN DIRECT INVESTMENTS GDP GDP DEFLATOR GDP PER CAPITA GLOBAL BANKING GLOBAL FINANCIAL SYSTEM GLOBALIZATION GROWTH RATE GROWTH RATES HOLDINGS HOME COUNTRY IMPLICIT SUBSIDIES INCOME INFLATION INFLATION RATE INFLATION RATES INSTITUTIONAL REFORM INSTRUMENT INSURED DEPOSITS INTEREST COSTS INTEREST EXPENSE INTEREST EXPENSES INTEREST RATES INTEREST SUBSIDIES INTERNATIONAL BANK INTERNATIONAL BANKING INTERNATIONAL BANKS INTERNATIONAL COOPERATION INTERNATIONAL DIVERSIFICATION INTERNATIONAL ECONOMY INTERNATIONAL PORTFOLIO INTERNATIONAL TRADE INVESTMENT ASSETS JURISDICTIONS LEGAL SYSTEM LEVEL PLAYING FIELD LIABILITY LIQUIDATION MACROECONOMIC CONTROL MACROECONOMIC POLICIES MACROECONOMIC VARIABLES MARGINAL COST MARKET DISCIPLINE MARKET INTEGRATION MARKET VALUE MONETARY FUND MORAL HAZARD MULTINATIONAL MULTINATIONAL BANK NATIONAL ECONOMIES NOMINAL INTEREST RATES OUTWARD PORTFOLIO INVESTMENTS OWNERSHIP DATA PERSONNEL EXPENSES PORTFOLIO INVESTMENT POSITIVE COEFFICIENT POSITIVE COEFFICIENTS PRICE VOLATILITY PRIVATE SECTOR DEVELOPMENT PROFITABILITY PUBLIC GOOD PUT OPTION REAL GDP RECAPITALIZATION REGULATORS REGULATORY BARRIERS REGULATORY TREATMENT RETURNS RISK DIVERSIFICATION RISK PROFILES RISK TAKING SAFETY NET SHARE PRICE SHORT TERM DEBT STOCK RETURNS STOCKS SUBORDINATED DEBT SUBSIDIARIES SUBSIDIARY TAX TAXATION THRIFT INSTITUTIONS VALUE OF ASSETS
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120117092544 http://hdl.handle.net/10986/3232

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Summary:	A bank's interest expenses rise with its degree of internationalization, measured by its share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration, especially if the bank is performing badly. The results in this paper suggest that an international bank's cost of funds raised through a foreign subsidiary is 1.5-2.4 percent higher than the cost of funds for a purely domestic bank. That is a sizeable difference, given that the overall mean cost of funds is 3.3 percent. These results can be explained by limited incentives for national authorities to bail out an international bank, as well as an inefficient recovery and resolution process for international banks. In any event, a less reliable financial safety net appears to be a barrier to cross-border banking.

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