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This paper disentangles the impacts of cultural proximity on cross‐border banking flows, using large country‐pair data from 1996 to 2019. On applying the gravity model with the Poisson Pseudo Maximum Likelihood estimator, our main findings show that cultural proximity is both a push and pull factor, which robustly anticipates increased outflows (cross‐border lending) and inflows (cross‐border borrowing). The impacts of cultural proximity are transmitted throughout the information asymmetry and cost reduction channels. These impacts become pronounced for geographically proximate country pairs and hold for a different measure of cultural goods taxonomy and for controlling the endogeneity problem. [ABSTRACT FROM AUTHOR]

This article investigates the effects of banking integration on banking competition in the ASEAN‐6 countries. Using a data set of 3217 bank‐year observations over the period 1996–2018, our main results indicate that: (i) banking openness positively affects banking competition; (ii) the overall degree of balanced (in/out) integration leads to greater market power; and (iii) the increase in the market monopoly following the participation of foreign banks can be reduced by good regulatory policies. These results remain intact when two alternative competition measures are employed and when a polynomial model and a threshold model are used to reveal the non‐linear and heterogeneous effects of banking integration. [ABSTRACT FROM AUTHOR]

Iceland imposed strict capital controls when its banks failed in October 2008. Legacy problems and a large stock of carry‐trade funds locked in by the controls hindered lifting them, but they also helped in resolving the banks. We formulate and calibrate a bargaining model describing the strategic interaction between Iceland and international investors. Outcomes indicate a judicious bargaining approach by Icelandic authorities which was ultimately successful and led to resolution by settlement. The results are robust to reasonable variations in parameter values and are consistent with outcomes in investment arbitration trials and anecdotal evidence from Icelandic case law. [ABSTRACT FROM AUTHOR]

The motivation of this article is to better understand the determinants of international banking integration of non-Euro CESEE EU Members. One stylized fact for these economies is the building up of external financial vulnerabilities since the beginning of the transition period, with a large weight of cross-border banking, particularly with the European Union. In relation with the literature on the impact of gross financial flows on financial stability, we therefore estimate the long-term historical, geographical and cultural determinants of cross-border banking claims with a bilateral financial gravity model. We then analyze the impact of domestic (pull), foreign (push) and global factors using the gravity framework. Our results first show that cross-border banking in these economies is significantly driven by geographical proximity and common historical links, particularly with EU Member States. Second, we find that banking sector health variables are more significant as push factors, while structural banking system variables are more significant as pull factors. These results provide evidence in favor of an impact of European banking systems on financial liabilities in this region, in relation with the very high level of EU ownership of banking assets. Finally, US global liquidity factor matters more than exchange rate stability, which points towards policy dilemma effect in the region. [ABSTRACT FROM AUTHOR]

There has been a remarkable increase of the regional banking operations across the African continent over the past two decades. This resulted from macroeconomic improvements and economic growth. As a result, African banks increased their geographical operations to emerge as regional groups holding a considerable market share compared to their historically predominant competitors. However, the literature on the pan-African banking industry to understand better this phenomenon is still scarce, which limits having a bigger and inclusive picture of all the key elements influencing this noteworthy growth. This research paper articulates a review based on previous academic research works, and highlights the most important opportunities that regional banks seized, as well as the challenges they faced in order to lead their cross-border banking operations successfully across the region. [ABSTRACT FROM AUTHOR]

This paper analyses the implications of cross-border banking (CBB) and institutional quality (IQ) for bank competition in Africa. It applies a two-step estimation procedure using bank-level panel data for 29 African countries. In step one, the Boone indicator and the Lerner index are used to gauge bank competition in a given country in Africa. In the second step, it analyzes the sources of bank competition placing emphasis on the impact of CBB and IQ. The results suggest that competition increased in the period of 2002–2005, before decreasing somewhat between 2006 and 2007 and increasing again thereafter. The results also show that cross-border banking enhances bank competition in African countries with stronger governance structures and institutional quality. These results are robust to an array of controls including an alternative methodology, variable specifications, and the regulatory environments that banks operate in. [ABSTRACT FROM AUTHOR]

Cross-border banking presents a unique set of challenges in the EU from the perspective of arranging administrative oversight structures. Structuring cooperation between different EU and national authorities in a way which is conducive to trust-building and mutual engagement is an essential condition for overcoming disintegrative tendencies in the internal market. To assess how the existing EU arrangements fare in this regard in the context of EU resolution law, this article comparatively analyses the different models of multilevel administrative cooperation in the post-crisis EU framework. These are specifically the centralised model of the European Banking Union (Single Resolution Mechanism) and the relatively looser networked model of the resolution colleges. The multilevel cooperation under both models is nuanced given the distinct roles of the national resolution authorities, EU agencies and the differentiated status of non-euro area Member States in the EBU (Croatia, Bulgaria). The article's findings allow to identify specific problems of constitutional nature pertaining to the accountability of administrative cooperation, equality of Member States and the implications of Meroni doctrine's distortive effects. [ABSTRACT FROM AUTHOR]

In this article we propose a novel measure of systemic risk in the context of financial networks. To this aim, we provide a definition of systemic risk which is based on the structure, developed at different levels, of clustered neighbours around the nodes of the network. The proposed measure incorporates the generalized concept of clustering coefficient of order l of a node i introduced in Cerqueti et al. (2018). Its properties are also explored in terms of systemic risk assessment. Empirical experiments on the time-varying global banking network show the effectiveness of the presented systemic risk measure and provide insights on how systemic risk has changed over the last years, also in the light of the recent financial crisis and the subsequent more stringent regulation for globally systemically important banks. [ABSTRACT FROM AUTHOR]

This paper explores the issue of robustness against failure cascades for the network of interbank exposures. The available data were retrieved through the Bank for International Settlements database and report only incomplete information from which networks displaying a core-periphery structure were produced. A model of financial contagion was set up to estimate the width and length of the cascades, and was run on the networks detected from the data, as well as simulated data. The role of incomplete information was taken into account by considering a worst-case scenario in which unobserved links were assumed to be present. Given the core-periphery structure of the network, the worst-case scenario was studied in different sub-cases in which different periphery organisations were considered. Simulations showed that the actual network was far from the worst scenario for the propagation of contagion, meaning that the role of unobserved links can substantially alter the resilience of the whole network. [ABSTRACT FROM AUTHOR]

This article introduces a unique and hand-collected dataset on cross-border exposures of 61 European banks. Getting a complete overview of the cross-border positions of European banks is challenging, as there are no regular reporting standards for banks’ foreign exposures split by country. Most studies therefore rely on data on banks’ foreign subsidiaries. This however leads to a significant underestimation of banks’ cross-border positions. We collect data from annual reports and other public sources for the period 2010-2017 in order to construct a dataset covering the complete cross-border exposures by banks. The dataset is valuable to academic researchers in finance and economics as well as central banks interested in financial globalization. The data are collected at the individual bank-level, and this provides opportunities for researchers aiming to analyse the impact of banks’ strategic decisions [1]. Lastly, since the cross-border exposures are split by host country the data can be used in gravity models, since it provides a measure of connectedness between banks and/or countries.

Research background: Recent financial crisis of 2007–2008 has influenced global banking system and led to reduction of cross-border bank lending in the EU and worldwide. Global banking network has been analysed extensively in prior or post-crisis periods, but the literature on regionalization is scarce, especially with regard to the banking sector in the EU. Moreover, in previous empirical research evaluation of banking sector regionalization using network analysis methodology has not been yet applied. Purpose of the article: The aim of the article is to map the EU banking network and to assess its regionalization during post-crisis period. Methods: the paper employs comparative literature analysis and synthesis; BIS bilateral interbank cross-border claim yearly flows matrix data and network analysis method (including network mapping, structural and comparative analysis and the data of intraregional and interregional banking network matrices) to assess the changes in regionalization of the EU banking system. Findings & Value added: The results of the research show that during post-crisis period both, EU 12 and EU 28, banking networks became more clustered and more decentralized; also the level of regionalization within the EU banking network increased. Such results prove that the EU banking network has undergone structural changes with respect to bilateral interbank cross-border claims. This research adds to the knowledge of regionalization processes within the EU banking network during the post-crisis period and intends to be beneficial for market participants, EU level governmental bodies and financial policy makers.

This paper studies the bilateral determinants of the international asset positions of banks, and subsequent bilateral adjustment during the global financial crisis and ensuing recovery phase. We find empirical support for traditional gravity-type variables. Exploiting a comprehensive dataset of bilateral bank assets, combined with a cross-country database on capital controls and macroeconomic policies, empirical evidence is provided for the effects of macroeconomic tools on the portfolio reallocation of internationally active banks. Specifically, higher current account balances in recipient countries are associated with higher inflows in debt assets, while restrictions on asset inflows and higher central bank reserves are related to lower cross-border flows of bank investment during the crisis and post-crisis periods, with heterogeneous effects across asset type. Finally, stronger institutions in recipient countries are positively associated with the international investment of banks, with inflows to debt assets being the most sensitive asset category across the financial cycle. [ABSTRACT FROM AUTHOR]

Against the background of the emergence of macroeconomic imbalances within the European Monetary Union (EMU), we investigate in this paper the macroeconomic consequences of cross-border banking in monetary unions such as the Euro area. For this purpose, we incorporate a union-wide banking sector along the lines in an otherwise standard two-region monetary union DSGE model, accounting for borrowing constraints of entrepreneurs and impatient households and an internal constraint on the bank's leverage ratio. We illustrate in particular how rule-of-thumb lending standards based on the macroeconomic performance of the core region within the monetary union can translate into destabilizing spill-over effects into the other region, resulting in an overall higher macroeconomic volatility. Thereby, we demonstrate a channel through which the financial sector may have exacerbated the emergence of macroeconomic imbalances within the EMU. This effect may be mitigated by macroprudential policies, where especially policies that force the bank's lending standards to be less procyclical prove to be effective in stabilizing output in both regions of the monetary union. [ABSTRACT FROM AUTHOR]

Four major Australian banks span the Australian and New Zealand banking system. Applying the financial trilemma model, this article investigates possible approaches for cooperation in the supervision and resolution of these cross-border banks. The article first reviews the current arrangement in the Trans-Tasman Council of Banking Supervision, which is based on a soft law approach. Next, this article explores a trans-Tasman banking union, which would encompass joint supervision and joint resolution based on burden sharing. The challenge is political. Are the two countries willing to join forces in banking policies and thus give up part of their sovereignty in this field? And can New Zealand, as the smaller one of the two, ensure an effective voice in joint arrangements? [ABSTRACT FROM AUTHOR]

Though cross-border banking, stimulated by globalization and financial integration in the recent past, is said to offer growth-enhancing benefits such as competition and efficiency, financial inclusion, and diversification of risk, these benefits seem not to have materialized markedly in Sub-Saharan Africa (SSA), an outcome attributable to efficiency barriers, currency differences, political instability, linguistic divisions, weak legal environment, and lack of regulatory coordination. However, given that many have flagged heterogeneity of regulatory architecture, inadequate institutional infrastructure, and other requisite environmental factors as more pivotal reasons for the delayed realization of cross-border banking's many benefits in SSA, we invoke lessons from the Euro area's successful experience in cross-border banking, to propose effective ways of harvesting its benefits in SSA. This paper, therefore, advances the initiation of a centralized regulatory authority as a potentially efficacious way of extracting fuller harvests from cross-border banking in SSA. More specifically, lessons from the Euro area suggest that strong collaboration among supervisors across SSA should be encouraged as to foster the establishment of a centralized regulatory authority for enabling successful cross-border banking and other financial services. Furthermore, the following regional initiatives can serve as robust antecedents of the centralized regulatory authority: single or more integrated regional markets, a regional deposit insurance scheme, and 1–2 dominant convertible currencies that can minimize exchange rate risks. [ABSTRACT FROM AUTHOR]

This paper examines the drivers of the retrenchment in cross-border banking in the European Union (EU) since the global financial crisis, which stands out in international comparison as banks located in the euro area and in the rest of the EU reduced their cross-border claims by around 25%. Particularly striking is the sharp and sustained reduction in intra-EU claims, especially in the form of deleveraging from cross-border interbank loans. Examining a wide range of possible determinants, we identify high non-performing loans as an important impediment to cross-border lending after the crisis, highlighting the spillovers from national banking sector conditions across the EU. We also find evidence that prudential policies can entail spillovers via cross-border banking in the EU, albeit with heterogeneity across instruments in terms of direction, magnitude and significance. Our results do not point to a major role of newly introduced bank levies in explaining cross-border banking developments. [ABSTRACT FROM AUTHOR]

The evolution of the EU supervisory architecture has demonstrated that it took the risk of a euro break-up to barely overcome the Member States and their supervisors’ political resistances to centralisation. In the two-tier Europe that is emerging after the euro crisis, the integrity of the single market seems today crucially interlinked with the success of the banking union and its attractiveness for non-euro countries. The banking union’s design, without a credible common fiscal backstop, remains however a partial solution to the financial stability issues arising from the fragmentation of the EU financial market in the event of banking crises. Against this background, this work performs an analysis on non-euro countries’ own assessments of the pros and cons of joining the banking union. The analysis aims at showing that until fiscal responsibility for financial stability remains at the national level, regulatory centralisation cannot sever the traditional divide between home and host supervisors. JEL: F35; F65; G01; G28

Highlights • Bank interconnectedness decreased due to the global financial crisis. • Regulatory initiatives aimed at containing systemic risk were also effective. • Within the global banking network, G-SIBs present different patterns of behaviors. Abstract This study shows that interconnections in the global banking network decreased due to the global financial crisis and subsequent regulatory initiatives. It also proves the effectiveness of the regulations of global systemically important banks in inducing these banks to contain their systemic nature. [ABSTRACT FROM AUTHOR]

Research background: Recent financial crisis of 2007-2008 has influenced global banking system and led to reduction of cross-border bank lending in the EU and worldwide. Global banking network has been analysed extensively in prior or post-crisis periods, but the literature on regionalization is scarce, especially with regard to the banking sector in the EU. Moreover, in previous empirical research evaluation of banking sector regionalization using network analysis methodology has not been yet applied. Purpose of the article: The aim of the article is to map the EU banking network and to assess its regionalization during post-crisis period. Methods: the paper employs comparative literature analysis and synthesis; BIS bilateral interbank cross-border claim yearly flows matrix data and network analysis method (including network mapping, structural and comparative analysis and the data of intraregional andinterregional banking network matrices) to assess the changes in regionalization of the EU banking system. Findings & Value added: The results of the research show that during post-crisis period both, EU 12 and EU 28, banking networks became more clustered and more decentralized; also the level of regionalization within the EU banking network increased. Such results prove that the EU banking network has undergone structural changes with respect to bilateral interbank cross-border claims. This research adds to the knowledge of regionalization processes within the EU banking network during the post-crisis period and intends to be beneficial for market participants, EU level governmental bodies and financial policy makers. [ABSTRACT FROM AUTHOR]

This paper provides evidence that bilateral factors were relevant for the adjustment of bank assets before and during the Great Recession. This finding is consistent with the theory that monitoring costs or informational frictions can help explain the adjustment of bank assets at a bilateral country level. Distance is a particularly relevant friction, and has non-uniform effects for advanced and emerging hosts. If the assets are denominated in domestic rather than foreign currency, this can reduce the negative effect of distance on adjustment. Further we find that trade, colonial ties and the history of a position are important for the bilateral adjustment of bank assets. [ABSTRACT FROM AUTHOR]

The paper analyses the implications of revenue diversification and cross-border banking for risk and return. We sample 320 banks across 29 African countries and employ System GMM estimator as a methodological approach to shed further light on the diversification-stability nexus by examining the complex interaction between three key variables: cross-border banking, diversification and bank stability. The results suggest that exploration risk reduces diversification as the level of capital increases when banks cross border to diversify across revenue generating activities. Our analyses further show that, banks in Africa derive absolute benefits from diversification if they cross border and diversify their revenue base concurrently. These results are robust to a range of controls including alternative variable specifications, regulatory environment that bank operate and methodology. [ABSTRACT FROM AUTHOR]

Swedish decision-makers opted out of the European banking union (EBU) despite the large cross-border presence of Swedish banks in Estonia, Latvia, and Lithuania. The three Baltic states, on the other hand, have already joined the eurozone and are part of the EBU. This article identifies three important domestic considerations that have shaped Sweden’s position. Firstly, Swedish decision-makers were concerned that member states outside the eurozone would not fully participate in EBU decision-making. Secondly, they were reluctant to pay for the recapitalisation or resolution of distressed non-Swedish banks in other EU countries. Thirdly, Sweden preferred to retain regulatory autonomy in crisis management. The article relates Sweden’s position to the overall cautious approach of other non-eurozone members such as the UK and Denmark. Nevertheless, it highlights the enhanced role of the European Central Bank (ECB) in banking supervision not only for eurozone insiders such as Estonia, Latvia, and Lithuania but also for member states outside the Eurozone such as Sweden. [ABSTRACT FROM PUBLISHER]

This paper surveys the recent academic literature on the economics of cross-border regulatory cooperation as well as recent policy developments in this area. While institutional arrangements of cross-border regulatory cooperation used to focus on day-to-day supervisory tasks, the crisis has given an impetus to a focus on cooperation at the bank resolution stage, with an array of different cooperation forms. A growing theoretical literature has documented different externalities arising from national supervision of cross-border banks, while empirical evidence has been relatively scarce. The paper concludes with a forward looking agenda both for policy reform and academic research in this area. [ABSTRACT FROM AUTHOR]

This article investigates the systemic risk of cross-border banking in East Asia. Using the recursive bivariate probit model, we jointly test the probability of the sudden stop in international lending and its simultaneous effect on the host countries’ interbank markets. The empirical results suggest that the risk of a sudden stop is associated with global liquidity shock; host country productivity shock; and the common lender contagion effect. This facilitates the transmission of interbank stress from advanced economies to emerging markets. However, the tension is mitigated by the “flight-home effect” caused by domestic investors’ repatriation. The sudden stop is more likely to occur in countries with lower financial openness but higher financial risk. Lending flows to the banking sectors are more sensitive to shocks than the flows to the non-bank private sectors. [ABSTRACT FROM AUTHOR]

In the last 5 years, the European institutional architecture of banking regulation and supervision has undergone sweeping changes, brought about by a number of sequential legislative initiatives. Such a 'Copernican revolution' naturally calls for investigating whether and how these different layers of reforms add up to (or can be interpreted in a way that ensures) an overall consistent, efficient and effective design for banking regulation and supervision. This is particularly the case for the European Banking Authority (EBA) and the Banking Union (BU), two new institutional players which in the public debate are sometimes dubbed as overlapping or even conflicting. This paper provides a critical analysis of this interplay and its components, also with the aim to provide food for thought for further exploration, from a private as well as a public law perspective. It starts from the reasons behind the foundation of the EBA and the BU, showing how these two new institutional players in fact were created to pursue two distinct and complementary goals and operate on two separate but interconnected institutional levels. The paper then dwells on the panoply of innovative regulatory tools which the EBA can deploy in order to accomplish its mission to foster maximum harmonisation and the creation of a single set of common rules (the 'Single Rulebook' or SR): technical standards, guidelines and recommendations, and other 'soft law' instruments, such as the Q&A tool. The analysis aims to stimulate further critical thinking on the scope and possible impact of these tools and their consistency within the overall European framework of legal sources. Hence, the focus moves to the main areas covered by the SR (i.e., prudential rules and resolution) and the priorities followed in its build-up, highlighting how these priorities can contribute to the effective functioning of the two current components of the BU, i.e., the SSM and the SRM. The paper concludes with some remarks on areas of possible improvement and development, underlining the need to: (i) step up the harmonisation of corporate and insolvency laws, given their impact on cross-border banking and cross-border resolution; (ii) provide more certainty on the scope and possible effects of the EBA's mediation role; and (iii) rethink the governance of the EBA, if there is to be a more balanced interplay between national and European drivers. [ABSTRACT FROM AUTHOR]

This paper investigates the role of home monetary policy stance and banking regulation on short-term noncore funding in Central, Eastern and Southeastern Europe using a sample of local subsidiaries. We find that the accumulation and dynamic of noncore funding differ significantly between subsidiaries in EU vs. non-EU host countries. While the direct impact of home monetary policy is to a certain extent limited it is amplified through several channels. The most potent among them are the characteristics of the parent bank: capitalization, liquidity, loan growth aggressiveness, provisioning policies and its relative size vis-à-vis a subsidiary. Regulation has only marginal effects and seems to be more potent for the subsidiaries operating in the EU countries. At the same time, host bank regulation seems neutral to the dynamics of the noncore funding and risk build-up on the liability side of the subsidiaries operating under those regimes. [ABSTRACT FROM AUTHOR]

L'articolo si occupa di aspetti normativi e competitivi della penetrazione reciproca da parte delle banche canadesi e statunitensi nei rispettivi mercati nazionali . Gli autori valutano il grado in cui i fattori economici sono gli unici responsabili per la differenza nei tassi di crescita tra le banche nazionali ed estere in Nord America. Essi sostengono che il regolamento non ha inciso sullala crescita delle banche estere in Nord America affrontando la questione della reciprocità in regolamenti bancari , prima di esaminare le banche estere negli Stati Uniti e il modo in cui sono state regolamentate .The paper is concerned with regulatory and competitive aspects of the mutual penetration by Canadian and U.S. banks of each other’s domestic markets. The authors assess the degree to which economic factors alone are responsible for the difference in growth rates between domestic and foreign banks in North America. They argue that regulation has not affected the growth of foreign banks in North America by addressing the question of reciprocity in banking regulations, before examining foreign banks in the U.S. and the manner in which they have been regulated. U.S. banks operating in Canada are then dealt with. Finally, the results of an empirical test of the proposition that the growth of cross-border banking is attributable to factors other than differential regulation is presented. JEL: G21

The paper is concerned with regulatory and competitive aspects of the mutual penetration by Canadian and U.S. banks of each other’s domestic markets. The authors assess the degree to which economic factors alone are responsible for the difference in growth rates between domestic and foreign banks in North America. They argue that regulation has not affected the growth of foreign banks in North America by addressing the question of reciprocity in banking regulations, before examining foreign banks in the U.S. and the manner in which they have been regulated. U.S. banks operating in Canada are then dealt with. Finally, the results of an empirical test of the proposition that the growth of cross-border banking is attributable to factors other than differential regulation is presented. JEL: G21