European University Institute Library

Banking across borders, evidence and implications, Friederike Niepmann

eng

This thesis sheds light on the motives, the nature and the implications of banking across borders. In Chapter 1, co-authored with Tim Schmidt-Eisenlohr, I examine the challenges that increased nancial integration presents for policy cooperation as nancial crises and government intervention have stronger e ects beyond borders. We provide a model of international contagion allowing for bank bailouts. While a social planner trades o tax distortions, liquidation losses and intra- and inter-country income inequality, in the noncooperative game between governments there are ine ciencies due to externalities, a lack of burden sharing and free-riding. We show that, in absence of cooperation, stronger interbank linkages make government interests diverge, whereas cross-border asset holdings tend to align them. We analyze di erent forms of cooperation and their e ects on global and national welfare. In Chapter 2, I show that rst principles of international trade theory go far in explaining banking across borders. I develop and test a theoretical model where trade in banking services arises from di erences in relative factor endowments and in banking technology across countries. The analysis reveals that di erences in endowments lead to international banking where banks raise capital in the home market and lend it abroad. In contrast, di erences in banking sector e ciency make banks intermediate capital locally in the foreign market, an activity which is denoted as global banking. The foreign assets and liabilities of a banking sector re ect the importance of each of the two driving forces. Key model predictions regarding the cross-country pattern of foreign banks asset and liability holdings are strongly supported by the data. In Chapter 3, I develop a general equilibrium model that can explain heterogeneity in banks' international and global activities across countries, across banks, and over time that is consistent with empirical facts. Choosing between investing and raising deposits at home and abroad, banks sort endogenously into cross-border lending and FDI: more e cient larger banks are more likely to engage in both of these activities (extensive margin). At the same time, they hold more foreign assets and liabilities (intensive margin). The model predicts precisely how the intensive and extensive margins change as capital accounts and banking sectors become more integrated, and how they vary with recipient and source country characteristics. It shows that capital ows depend crucially on banking sector e ciency in the source and the recipient country

Includes bibliographical references (pages 160-161)

Thesis (Ph. D.)--European University Institute (ECO), 2012.

no index present

non fiction

Banking across borders

theses

1088482176

Defence date: 13 June 2012

Friederike Niepmann

EUI PhD thesesEUI theses

evidence and implications