Regulatory Arbitrage and Loan Location Decisions by Multinational Banks

Asli Demirguc-Kunt, Balint Horvath and Harry Huizinga

No 639, Working Papers from Center for Global Development

Abstract: This paper examines the impact of international differences in capital regulation on multinational banks’ loan origination location decisions. International loan location decisions represent a key banking margin that has previously not been examined in the literature on regulatory arbitrage by banks. Our estimation relies on within-loan contribution variation in location options for individual multinational banks that participate in a syndicated loan. We examine how the loan location choice and the intensity of regulatory arbitrage are affected by borrower transparency. We find that greater borrower transparency to a local bank establishment makes loan location at this establishment more likely, and that regulatory arbitrage is more intense in the case of more transparent borrowers.

Keywords: Regulatory arbitrage; capital regulations; loan origination (search for similar items in EconPapers)
JEL-codes: G21 G38 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2023-04-11
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-ure
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Journal Article: Regulatory arbitrage and loan location decisions by multinational banks (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:cgd:wpaper:639

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