Risk and the Corporate Structure of Banks

International Monetary Fund

No 2010/040, IMF Working Papers from International Monetary Fund

Abstract: We identify different sources of risk as important determinants of banks' corporate structures when expanding into new markets. Subsidiary-based corporate structures benefit from greater protection against economic risk because of affiliate-level limited liability, but are more exposed to the risk of capital expropriation than are branches. Thus, branch-based structures are preferred to subsidiary-based structures when expropriation risk is high relative to economic risk, and vice versa. Greater cross-country risk correlation and more accurate pricing of risk by investors reduce the differences between the two structures. Furthermore, the corporate structure affects bank risk taking and affiliate size.

Keywords: WP; parent bank; branch structure; limited liability; subsidiary structure; Bank branches; subsidiaries; bank liability; endogenize bank risk taking; risk-taking incentive; creditors price risk; Credit risk; Loans; Foreign banks; Organizational structure of revenue administration; Bank credit; Eastern Europe; Western Europe (search for similar items in EconPapers)
Pages: 26
Date: 2010-02-01
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Citations: View citations in EconPapers (34)

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