Faia, Ester and Ottaviano, Gianmarco I. P. (2017) Global banking: Risk taking and competition. CEP Discussion Papers (CEPDP1471). London School of Economics and Political Science. Centre for Economic Performance, London, UK.
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Abstract
Direct involvement of global banks in local retail activities can reduce risk-taking by promoting local competition. We develop this argument through a model in which multinational banks operate simultaneously in different countries with direct involvement in imperfectly competitive local deposit and loan markets. The model generates predictions that are consistent with the foregoing argument as long as the expansionary impact of competition on multinational banks’ aggregate profits through larger scale is strong enough to offset its parallel contractionary impact through lower loan-deposit return margin (a result valid with both perfectly and imperfectly correlated loans’ risk). When this is the case, banking globalization also moderates the credit crunch following a deterioration in the investment climate. Compared with multinational banking, the beneficial effect of cross-border lending on risk-taking is weaker.
| Item Type: | Monograph (Discussion Paper) |
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| Official URL: | http://cep.lse.ac.uk/ |
| Additional Information: | © 2017 The Authors |
| Divisions: | Economics Centre for Economic Performance |
| Subjects: | H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management H Social Sciences > HG Finance |
| Date Deposited: | 21 Jul 2017 09:47 |
| Last Modified: | 13 Sep 2024 20:38 |
| Funders: | Economic and Social Research Council |
| URI: | http://eprints.lse.ac.uk/id/eprint/83601 |
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