Cross-Border Bank Flows and Systemic Risk*

G Andrew Karolyi, John Sedunov and Alvaro G. Taboada

Review of Finance, 2023, vol. 27, issue 5, 1563-1614

Abstract: We find that heightened cross-border bank flows are associated with lower systemic risk in a target country’s banking system. The reductions in systemic risk are stronger for flows coming from source countries with stronger regulatory oversight than the target country. Such cross-border bank flows linked to regulatory arbitrage are also associated with improvements in target banking sector profitability, asset quality, and efficiency. We assess several alternative channels of influence for cross-border bank flows but interpret the evidence on these flows as mostly consistent with a benign form of regulatory arbitrage.

Keywords: Cross-border bank flows; Financial institutions; Regulation; Systemic risk; Financial crises (search for similar items in EconPapers)
JEL-codes: G21 G28 G34 G38 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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