Foreign expansion, competition and bank risk

Ester Faia, Sébastien Laffitte and Gianmarco Ottaviano

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Using a novel dataset on the 15 European banks classified as G-SIBs from 2005 to 2014, we find that the impact of foreign expansion on risk is always negative and significant for most individual and systemic risk metrics. In the case of individual metrics, we also find that foreign expansion affects risk through a competition channel as the estimated impact of openings differs between host countries that are more or less competitive than the source country. The systemic risk metrics also decline with respect to expansion, though results for the competition channel are more mixed, suggesting that systemic risk is more likely to be affected by country or business models characteristics that go beyond and above the differential intensity of competition between source and host markets. Empirical results can be rationalized through a simple model with oligopolistic/oligopsonistic banks and endogenous assets/liabilities risk.

Keywords: banks’ risk-taking; systemic risk; geographical expansion; gravity; diversification; competition; regulatory arbitrage (search for similar items in EconPapers)
JEL-codes: G21 G32 L13 (search for similar items in EconPapers)
Date: 2018-08
New Economics Papers: this item is included in nep-ban, nep-com and nep-rmg
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://eprints.lse.ac.uk/91689/ Open access version. (application/pdf)

Related works:
Journal Article: Foreign expansion, competition and bank risk (2019)
Chapter: Foreign Expansion, Competition and Bank Risk (2018)
Working Paper: Foreign expansion, competition and bank risk (2018)
Working Paper: Foreign Expansion, Competition and Bank Risk (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:91689

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