A Model of Takeovers of Foreign Banks

Rafael Repullo

No 2639, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper investigates the determinants of the takeover of a foreign bank by a domestic bank whereby the former becomes a branch of the latter. Each bank is initially supervised by a national agency that cares about closure costs and deposit insurance payouts, and may decide the early closure of the bank on the basis of supervisory information. Under the principle of home country control, the takeover moves responsibility for both the supervision of the foreign bank and the insurance of the foreign deposits to the domestic agency. It is shown that the takeover is more likely to happen if the foreign bank is small (relative to the foreign banking market) and its investments are risky (relative to those of the domestic bank). Moreover, the takeover is in general welfare improving for both countries.

Keywords: Bank supervision; Bank closure; Deposit insurance; Home country control; International banks; Takeovers in banking; Cross-border bank mergers (search for similar items in EconPapers)
JEL-codes: G21 G28 G34 (search for similar items in EconPapers)
Date: 2000-12
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: A model of takeovers of foreign banks (2001)
Working Paper: A Model of Takeovers of Foreign Banks (2000)
Working Paper: A Model of Takeovers of Foreign Banks (2000)
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