Review of Finance Vol. 27 No. 5 2023

Cross-Border Bank Flows and Systemic Risk

G. Andrew Karolyi¹; John Sedunov²; Alvaro G. Taboada³

¹ Cornell S.C. Johnson College of Business, Cornell University , Ithaca, NY, · ² Villanova University, Villanova , PA, · ³ Mississippi State University, Mississippi State, MS, USA

Abstract

We find that heightened cross-border bank flows are associated with lower systemic risk in a target country’s banking system. The reductions in systemic risk are stronger for flows coming from source countries with stronger regulatory oversight than the target country. Such cross-border bank flows linked to regulatory arbitrage are also associated with improvements in target banking sector profitability, asset quality, and efficiency. We assess several alternative channels of influence for cross-border bank flows but interpret the evidence on these flows as mostly consistent with a benign form of regulatory arbitrage.

DOI

10.1093/rof/rfad001

Volume

27

Issue

5

Pages

1563-1614

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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