International expansion and riskiness of Banks

Ester Faia, Gianmarco Ottaviano and Irene Sanchez Arjona

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We exploit an original dataset on European G-SIBs to assess how expansion in foreign markets affects their riskiness. We find a robust negative correlation between foreign expansion and bank risk (proxied by various individual and systemic risk metrics). Given individual bank riskiness, banks’expansion reduces the average riskiness of the banks’ pool (between effect). Moreover, foreign expansion of any given bank reduces its own risk (within effect). Diversification, competition and regulation channels are all important. Expansion in destination countries with different business cycle co-movement, stricter regulations and higher competition than the origin country decreases a bank’s riskiness.

Keywords: banks' risk; systemic risk; global expansion; competition; diversification; regulation (search for similar items in EconPapers)
JEL-codes: F3 G3 G32 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2017-04
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-eec, nep-ifn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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http://eprints.lse.ac.uk/83615/ Open access version. (application/pdf)

Related works:
Working Paper: International expansion and riskiness of banks (2017)
Working Paper: International Expansion and Riskiness of Banks (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:83615

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