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Discussion Paper Details

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Title: International Expansion and Riskiness of Banks

Author(s): Ester Faia, Gianmarco Ottaviano and Irene Sanchez Arjona

Publication Date: April 2017

Keyword(s): banks' risk, Competition, Diversification, global expansion, regulation and systemic risk

Programme Area(s): Financial Economics, International Macroeconomics and Finance and International Trade and Regional Economics

Abstract: We exploit an original dataset on European G-SIBs to assess how banks? internationalization affects risk in the banking sector. We find a robust negative correlation between foreign expansion and banking risk as captured by various individual bank and systemic risk metrics. An IV strategy based on gravity regressions allows us to conclude that in our sample there is strong evidence that banks? foreign expansion reduces risk, both from an individual bank and a systemic viewpoint. This reduction is associated with better asset diversification with no evidence of any relevant detrimental effect of possible regulatory arbitrage.

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Bibliographic Reference

Faia, E, Ottaviano, G and Sanchez Arjona, I. 2017. 'International Expansion and Riskiness of Banks'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11951