Can Mergers in Europe Help Banks Hedge Against Macroeconomic Risk?

Pierre-Guillaume Méon and Laurent Weill ()

No 05-08.RS, Working Papers DULBEA from Université libre de Bruxelles, Department of Applied Economics (DULBEA)

Abstract: This paper investigates the motive of geographic risk diversification in the lending activity for bank mergers in the EU on a sample of large banking groups. Geographic diversification should allow banks to reduce their risk. We observe that the loan portfolios of European banks are home-biased. We apply the portfolio approach to explore the risk-return efficiency of the locations of banks’ activities. We also study mergers between pairs of banks. We provide evidence of the sub-optimality of the loan portfolios of European banks in terms of geographic risk diversification, and of the existence of potential gains from inter-country pair mergers.

Keywords: bank mergers; risk diversification; European integration (search for similar items in EconPapers)
JEL-codes: F15 G11 G21 G34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-fin, nep-fmk and nep-rmg
Date: 2005-02
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Published in Applied Financial Economics, 2005, vol. 15, n°5, pages 315-326.

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Related works:
Working Paper: Can Mergers in Europe Help Banks Hedge Against Macroeconomic Risk (2003)
Journal Article: Can mergers in Europe help banks hedge against macroeconomic risk? (2005)
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