Foreign Bank Subsidiaries’ Default Risk during the Global Crisis What Factors Help Insulate Affiliates from their Parents?

This paper examines the association between the default risk of foreign bank subsidiaries in developing countries and their parents during the global financial crisis, with the purpose of determining the size and sign of this correlation and, more importantly, understanding what factors can help ins...

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Bibliographic Details
Main Author: Anginer, Deniz
Other Authors: Cerutti, Eugenio, Martinez Peria, Maria
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2016
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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651 4 |a United Kingdom 
653 |a Banks and banking, Foreign 
653 |a Stock exchanges 
653 |a Banks 
653 |a Finance 
653 |a Banks and banking 
653 |a Exports and Imports 
653 |a Mortgages 
653 |a International Lending and Debt Problems 
653 |a External debt 
653 |a International Financial Markets 
653 |a Bank regulation 
653 |a Financial markets 
653 |a Banking 
653 |a Investment Decisions 
653 |a Depository Institutions 
653 |a Financial institutions 
653 |a Bank supervision 
653 |a Financial Aspects of Economic Integration 
653 |a Micro Finance Institutions 
653 |a Financial Institutions and Services: Government Policy and Regulation 
653 |a General Financial Markets: General (includes Measurement and Data) 
653 |a International economics 
653 |a Debts, External 
653 |a Stock markets 
653 |a Banks and banking; State supervision 
653 |a Banks and Banking 
653 |a Financial regulation and supervision 
653 |a Portfolio Choice 
653 |a Finance: General 
653 |a Financial services law & regulation 
653 |a Foreign banks 
653 |a Debt default 
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700 1 |a Martinez Peria, Maria 
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520 |a This paper examines the association between the default risk of foreign bank subsidiaries in developing countries and their parents during the global financial crisis, with the purpose of determining the size and sign of this correlation and, more importantly, understanding what factors can help insulate affiliates from their parents. We find evidence of a significant and robust positive correlation between parent banks’ and foreign subsidiaries’ default risk. This correlation is lower for subsidiaries that have a higher share of retail deposit funding and that are more independently managed from their parents. Host country bank regulations also influence the extent to which shocks to the parents affect the subsidiaries’ default risk. In particular, the correlation between the default risk of subsidiaries and their parents is lower for subsidiaries operating in countries that impose higher capital, reserve, provisioning, and disclosure requirements, and tougher restrictions on bank activities