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Foreign Investment, Regulatory Arbitrage, and the Risk of U.S. Banking Organizations

W Frame (), Atanas Mihov () and Leandro Sanz ()
Additional contact information
Atanas Mihov: Federal Reserve Bank of Richmond, Postal: 530 East Trade Street, Charlotte, NC 28202
Leandro Sanz: Federal Reserve Bank of Richmond, Postal: 530 East Trade Street, Charlotte, NC 28202

No 2017-2, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This study investigates the implications of cross-country differences in banking regulation and supervision for the international subsidiary locations and risk of U.S. bank holding companies (BHCs). We find that U.S. BHCs are more likely to operate subsidiaries in countries with weaker regulation and supervision and that such location decisions are associated with elevated BHC risk and higher contribution to systemic risk. The quality of BHCs’ internal controls and risk management play an important role in these location choices and risk outcomes. Overall, our study suggests that U.S. banking organizations engage in cross-country regulatory arbitrage with potentially adverse consequences.

Keywords: regulation; supervision; bank holding companies; cross-border operations; subsidiary locations; risk; systemic risk (search for similar items in EconPapers)
JEL-codes: G15 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
Date: 2017-03-01
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