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International Expansion and Riskiness of Banks

Ester Faia, Gianmarco Ottaviano and Irene Sanchez Arjona

No 11951, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We exploit an original dataset on European G-SIBs to assess how banks’ internationalization affects risk in the banking sector. We find a robust negative correlation between foreign expansion and banking risk as captured by various individual bank and systemic risk metrics. An IV strategy based on gravity regressions allows us to conclude that in our sample there is strong evidence that banks’ foreign expansion reduces risk, both from an individual bank and a systemic viewpoint. This reduction is associated with better asset diversification with no evidence of any relevant detrimental effect of possible regulatory arbitrage.

Keywords: Banks’ risk; Systemic risk; Global expansion; Competition; Diversification; Regulation (search for similar items in EconPapers)
JEL-codes: F23 F65 G21 G32 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-ban and nep-ifn
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Citations: View citations in EconPapers (6)

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Working Paper: International expansion and riskiness of banks (2017) Downloads
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