Discussion Paper Details

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Title: Regulation of Multinational banks: A Theoretical Inquiry

Author(s): Giacomo Calzolari and Gyöngyi Lóránth

Publication Date: February 2004

Keyword(s): branch, multinational banks, prudential regulation, representation form and subsidiary

Programme Area(s): Financial Economics

Abstract: This Paper studies prudential regulation of a multinational bank (MNB here-after). We analyse how two frequently chosen representation forms for MNBs - branch and subsidiary representation - affect the behaviour of national regulators. We find that the different liability structure and insurance arrangements for non-local depositors under the two representations have a crucial impact on regulators? behaviour. We show that branch representation leads to a more lenient regulation for the home unit (the unit of incorporation) than subsidiary representation. Regulation of the foreign unit can be softer or tougher in branch MNBs depending on the prospect of the home unit. We examine how intervention of a regulator in charge of a given bank's unit changes with the information received about the foreign units. We discuss the effect of lobbying activity and international resources transfers on its regulation.

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Bibliographic Reference

Calzolari, G and Lóránth, G. 2004. 'Regulation of Multinational banks: A Theoretical Inquiry'. London, Centre for Economic Policy Research.