TITLE

BANK REGULATION AND THE INTERNATIONAL LOCATION CHOICE OF BANKS

AUTHOR(S)
Rupprecht, Manuel
PUB. DATE
October 2008
SOURCE
Journal of International Business & Economics;10/20/2008, Vol. 8 Issue 3, p176
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
In recent years, the internationalisation of banks has increased rapidly. Looking for profit opportunities, banks evaluate different markets by taking various determinants into account. Among them, host country regulation is of significant importance. Despite Basel II, regulations still differ significantly across countries, with the sub-prime based discussion further highlighting international variations. Although regulation generally contributes to financial stability, it also imposes considerable costs on banks, depending on the particular regulatory standards. This paper develops a theoretical framework to examine the impact of bank regulation on the international location choice of banks. Drawing on transaction costs theory, we show that location choice is strongly influenced by the risk preference of banks, with risk affine banks being much more international. Furthermore, deposit insurance predominantly attracts risk affine banks, while risk avers banks prefer markets with high capital requirements and low activity restrictions in our model. Additionally, we look at general regulation policy and find that rule-based and transparent regulation is more desirable for banks than volatile policy. Our results contribute to the understanding of banks' internationalisation and point out the impact of regulatory differences on the location choice of banks.
ACCESSION #
35637625

 

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