Is the financial safety net a barrier to cross-border banking ?

Ata Bertay, Asli Demirguc-Kunt and Harry Huizinga

No 5947, Policy Research Working Paper Series from The World Bank

Abstract: A bank's interest expenses rise with its degree of internationalization, measured by its share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration, especially if the bank is performing badly. The results in this paper suggest that an international bank's cost of funds raised through a foreign subsidiary is 1.5-2.4 percent higher than the cost of funds for a purely domestic bank. That is a sizeable difference, given that the overall mean cost of funds is 3.3 percent. These results can be explained by limited incentives for national authorities to bail out an international bank, as well as an inefficient recovery and resolution process for international banks. In any event, a less reliable financial safety net appears to be a barrier to cross-border banking.

Keywords: Banks&Banking Reform; Debt Markets; Access to Finance; Emerging Markets; Economic Theory&Research (search for similar items in EconPapers)
Date: 2012-01-01
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Is the Financial Safety Net a Barrier to Cross-Border Banking? (2011)
Working Paper: Is the Financial Safety Net a Barrier to Cross-Border Banking? (2011)
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