Working Paper: CEPR ID: DP4232
Authors: Giacomo Calzolari; Gyngyi Loranth
Abstract: This Paper studies prudential regulation of a multinational bank (MNB here-after). We analyse how two frequently chosen representation forms for MNBs - branch and subsidiary representation - affect the behaviour of national regulators. We find that the different liability structure and insurance arrangements for non-local depositors under the two representations have a crucial impact on regulators? behaviour. We show that branch representation leads to a more lenient regulation for the home unit (the unit of incorporation) than subsidiary representation. Regulation of the foreign unit can be softer or tougher in branch MNBs depending on the prospect of the home unit. We examine how intervention of a regulator in charge of a given bank's unit changes with the information received about the foreign units. We discuss the effect of lobbying activity and international resources transfers on its regulation.
Keywords: branch; multinational banks; prudential regulation; representation form; subsidiary
JEL Codes: F23; G21; G28; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| branch representation (Y60) | more lenient regulation of home unit (R38) |
| subsidiary representation (L14) | tougher regulation of foreign unit (G18) |
| home unit's prospects (good) (R21) | tougher regulation of foreign unit (G18) |
| foreign unit's good news (F29) | more lenient regulation of home unit (R38) |