Bankers Without Borders? Implications of Ring-Fencing for European Cross-Border Banks
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Summary:
This paper presents a stylized analysis of the effects of ring-fencing (i.e., different restrictions on cross-border transfers of excess profits and/or capital between a parent bank and its subsidiaries located in different jurisdictions) on cross-border banks. Using a sample of 25 large European banking groups with subsidiaries in Central, Eastern and Southern Europe (CESE), we analyze the impact of a CESE credit shock on the capital buffers needed by the sample banking groups under different forms of ring-fencing. Our simulations show that under stricter forms of ring-fencing, sample banking groups have substantially larger needs for capital buffers at the parent and/or subsidiary level than under less strict (or in the absence of any) ring-fencing.
Series:
Working Paper No. 2010/247
Subject:
Banking Credit Cross-border banking Cross-border effects Nonperforming loans
Frequency:
Biannually
English
Publication Date:
November 1, 2010
ISBN/ISSN:
9781455209477/1018-5941
Stock No:
WPIEA2010247
Pages:
35
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