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Is the financial safety net a barrier to cross-border banking ?, Volume 1
 
Author:Bertay, Ata Can; Demirguc-Kunt Asli; Huizinga, Harry; Collection Title:Policy Research working paper ; no. WPS 5947
Country:World; Date Stored:2012/01/17
Document Date:2012/01/01Document Type:Policy Research Working Paper
SubTopics:Access to Finance; Emerging Markets; Economic Theory & Research; Banks & Banking Reform; Debt MarketsLanguage:English
Region:The World RegionReport Number:WPS5947
Volume No:1  

Summary: 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.

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