Cross-border banking and foreign branch regulation in Europe

Lucia Gibilaro and Gianluca Mattarocci

Journal of Financial Regulation and Compliance, 2021, vol. 29, issue 3, 280-296

Abstract: Purpose - This paper aims to examine the relevance of cross-border activity in the European banking sector, evaluating the role of differences in regulation to explain the level of interest in entering foreign markets. Design/methodology/approach - The sample considers all banks in the European Union (EU 28) existing at year-end 2017, and information about the ultimate owners’ nationality to classify local and foreign banks is collected. The analysis provides a mapping of regulatory restrictions for foreign banks and evaluates how they impact the role of foreign players in the deposit and lending markets. Findings - Results show that the lower are the capital adequacy requirements, the higher are the amounts of loans and deposits offered by non-European Economic Area banks and, additionally, the higher the probability of having a foreign bank operating in the country. Originality/value - This paper provides new evidence on regulatory arbitrage opportunities in the EU and outlines differences among EU countries not previously studied.

Keywords: Loans; Foreign banks; Deposits; Regulatory arbitrage; Capital requirements (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-08-2020-0072

DOI: 10.1108/JFRC-08-2020-0072

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