the effects of cross border bank mergers on bank risk and value abstract this paper examines the effects of cross border bank mergers on the risk and abnormal returns of acquiring banks we find that overall the acquirers risk neither increases nor decreases in particular on average neither their total risk nor their systematic risk falls relative to banks in their home banking market the abnormal returns to acquirers are negative and significant but are somewhat higher when risk increases relative to banks in the acquirer s home country

the determination of foreign banking location abstract in this paper we examine the determinants of foreign bank location we initially present some time series data on the postwar expansion of international banking we show that foreign branching increased very rapidly from about 1960 to the mid 1980s and slowed significantly after 1985 one interpretation of this growth in foreign branching is that it largely paralleled the increase in trade and foreign direct investment although it may also have been encouraged by the improvements in communications and the rapid financial innovation of the 1960s and 1970s to assess the role of trade and foreign direct investment on bank expansion we employ a cross sectional analysis of the pattern of foreign bank offices whereas previous studies have focused on a single parent or host country our study extends the existing literature by analyzing the location of nearly 2000 overseas offices across 37 patent and 82 host countries our results suggest a significant relationship between the pattern of bank location trade and foreign direct investment we define a banking centre as one in which there are more foreign banks than can be explained in terms of real business activity and we show that the usa uk switzerland singapore and indonesia most clearly qualify as banking centres we also provide some evidence for a sample of host countries that the abnormal number of bank offices is related to capital market activities

alternative models for clearance and settlement the case of the single european capital market in this paper we examine barriers to european financial market integration associated with imperfections and frictions imbedded in the clearance and settlement of cross border trades clearance and settlement costs can be viewed as a subset of the transaction costs facing an investor buyer or seller in effecting a trade total transaction costs can include quote spread measures see huang and stoll 1995 fees commissions foreign exchange costs transfer taxes and the costs associated with credit and liquidity risks to date their effect on the structure and scale of trading has been largely ignored by researchers yet in the european context where most securities trading especially equities is still fragmented along national lines such costs merit particular attention in recent years considerable interest has focused on the potential gains from international portfolio diversification ipd specifically by buying a wide array of international securities investors can potentially reduce their exposures to both local market risk and local currency risk this has resulted in a rapid growth of specialized mutual and investment funds and their managers seeking to maximize the gains from ipd to institutional and individual investors in their search for efficient portfolios 1

cross border bank m as and risk evidence from the bond market the impact of cross border bank m as on bank risk remains an open question though geographically diversifying bank m as have the potential to reduce the risk of bank insolvency they also have the potential to increase that risk due to the increase in risk taking incentives by bank managers and stockholders following these transactions this paper empirically investigates whether cross border bank m as increase or decrease the risk of acquiring banks as captured by changes in acquirers yield spreads this paper also investigates how differences in the institutional environments between bidder and target countries affect changes in yield spreads following m a announcements the study finds that bondholders in general perceive cross border bank m as as risk increasing activities unlike domestic bank mergers specifically on average yield spreads increase by 4 13 basis points following the announcement of cross border m as this study also finds that these yield spreads are significantly affected by the differences in investor protection and deposit insurance environments between the transacting countries however the study does not find that the regulatory and supervisory environment in the home countries of the transacting parties significantly affects the changes in yield spreads the overall evidence suggests that regulators should judge the relative environment in both the home and the host countries in evaluating the associated risks of an active multinational financial institution and in setting the sufficiency of the banks reserve positions

incentive effects of the u s welfare system a review the author would like to acknowledge support for prior work on this topic from the u s department of health and human services and helpful comments from three anonymous referees rebecca blank howard chernick john fitzgerald irwin garfinkel peter gottschalk edward gramlich david greenberg judith gueron james heckman v joseph hotz robert hutchens michael keane frank levy larry mead michael murray robert plotnick anuradha rangarajan philip robins howard rolston jeffrey smith and daniel weinberg all opinions and errors are those of the author alone

economic cost scale efficiency and competitive viability in banking this paper addresses the issue of the competitive viability of banks of different scales and scopes of operation and the implications that this may have for the evolving structure of the banking and financial services industry unlike previous papers this paper is the first to include both production and opportunity costs in an empirical evaluation of bank efficiency no consistent evidence is reported to suggest that banking organizations can achieve further gains in either production or economic efficiency by expanding beyond 2 billion dollars of total assets thus it is likely that smaller less diversified banking organizations will remain competitively viable copyright 1996 by ohio state university press

foreign owned banks in the united states earning market share or buying it foreign owned u s banks have been chronically unprofitable for more than a decade the authors employ a profit efficiency model introduced by allen n berger diana hancock and david b humphrey 1993 modified to be less sensitive to variations in asset size to estimate the relative profit efficiency of 62 foreign owned and 240 u s owned banks between 1985 and 1990 their results indicate that foreign owned banks were significantly less profit efficient than were u s owned banks primarily due to foreign banks reliance on expensive purchased funds for foreign owned banks the results are consistent with a strategy of sacrificing profits in exchange for fast growth and increased market share during the 1980s copyright 1996 by ohio state university press

post socialist financial fragility the case of albania the 1997 collapse of the albanian economy caused by the collapse of economy wideponzi schemes contrasts sharply to itssuccess status as a post socialist transition country in the years 1992 1996 inthis paper an attempt is made to explain this albanian paradox the specific albanian conditions for the growth of ponzischemes are identified theoretically thealbanian paradox can be interpreted as one version of the financial instabilityhypothesis suggested by minsky investigation of the underlying factors that render financial markets fragilesuggests that the albanian case is extreme butnot rare in the region in the post socialist setting expectations of thepopulation and other potential investors based on alack of reliable information on returns may lead to excessive capital inflow this trend is reinforced if governments areweak and if transition policies rely largely on liberal financial marketdevelopment rapid privatisation and external capitalinflows facilitating the tendency to instability identification of this trendis hindered if policy makers and observers largelyrely on macroeconomic indicators in monitoring the economy

the boundaries of multinational enterprises and the theory of international trade this paper begins with a review of empirical evidence on multinational firms conceptual underpinnings of a theory are developed relying in particular on the notion of knowledge capital as a mobile joint input into geographically separated production facilities this idea is embedded in a simple two country general equilibrium model that supports multinational production in equilibrium under conditions consistent with the empirical evidence the final section examines internalization and shows why certain properties of knowledge capital also imply a preference for transferring technologies internally within the firm rather than through arm s length markets

information or regulation what drives the international activities of commercial banks information costs and regulatory barriers distinguish international financial markets from national ones using panel data on bilateral assets and liabilities of commercial banks i empirically determine the impact of information costs and regulations and i isolate intra eu financial linkages i confirm that information costs and regulations are important factors influencing international asset choices of banks but their relative importance differs among countries

economic reform in eastern europe can theory help it has been three years now since central and eastern european countries have initiated transitional reforms aimed at replacing the old system of central command and planning by a market system yet there is very little understanding among economists as to what the optional speed and sequencing of reforms should be how the restructuring and or privatisation of state owned enterprises soes should be conducted how the banking system should be redesigned and regulated how and to what extent the state should intervene in the transition process the purpose of this introductory paper is to show how simple theoretical models can shed further light on these questions and also provide some foundations for alternative non orthodox policy recommendations both on the macroeconomic and the structural sides of the transition process

bank lending to small businesses in latin america does bank origin matter recently foreign bank participation has increased significantly in developing countries fueling concerns that foreign banks might extend credit only to certain sectors leaving customers like small businesses unattended using bank level data for four latin american countries during the mid 1990s we investigate whether bank origin affects the share and growth of lending to small businesses while on average foreign banks seem to lend less to small businesses regression results reveal significant differences between small and large foreign banks in general we find that the latter surpass large domestic banks in their share and growth of lending to small businesses

location decisions of foreign banks and competitor remoteness this paper examines the role of competitor remoteness the weighted average distance of all competing banks to a host country on the location decision of a foreign bank it uses unique bilateral data on 1 199 foreign banks from 75 home countries present in 110 host countries it finds that besides bilateral distance competitor remoteness importantly drives foreign banks location decisions the impact of distance and competitor remoteness is stronger for non oecd home and host countries when the scale of foreign bank inward and outward investment is limited and for host countries where foreign banks dominate

technical change organizational form and the structure of bank production of those technological characteristics related to the nature of competition among firms in an industry or market scale economies and technical change are especially important economies of scale are said to exist when an equiproportional increase in all inputs results in a greater than proportional increase in output or equivalently when an increase in output at constant input prices leads to a less than proportional increase in total costs thus average costs decline as output expands depending upon the extent to which costs decline as output increases regulation of the firms in the industry may be necessary l the literature analyzing scale economies in commercial banking is voluminous the early studies on scale economies in banking include those by benston 1965 1972 greenbaum 1967 murphy 1972 and bell and murphy 1968 more recent studies include those by benston hanweck and humphrey 1982 and clark 1984 2 this literature has established that mild scale economies exist in bank

international investment agreements and services markets locking in market failure summary bilateral investment treaties bits and investment chapters in preferential trade agreements have become popular measures to guarantee investor friendly policies while they reassure multinational firms they also constrain host country authorities in regulating markets to stimulate competition these problems are widespread in service industries characterized by significant economies of scale this paper presents case studies of the difficulties the chilean regulatory authorities faced in regulating the financial services telecom and energy industries it concludes that able regulators are necessary but that international agreements need to also leave enough policy space

the productivity effects of bank mergers evidence from the uk building societies abstract this paper presents an empirical investigation of the impact of acquisition activity on financial intermediary productivity specifically it uses an augmented production function approach to investigate the impact of acquisition after controls for input changes the model is estimated on an unbalanced panel of 93 uk building societies over the period 1981 1993 using data on their core financial intermediation activities which it is suggested are particularly appropriate for our purposes in contrast to much of the existing merger literature which for the most part uses financial performance data our results do indicate significant and substantial productivity gains following acquisition these are consistent with an acquisitions process in which less efficient firms are acquired and reorganized the post merger gains appear to increase substantially in the post deregulation period when pressures to minimize cost are widely considered to have increased

foreign banks trends and impact over the past two decades foreign banks have become much more important in domestic financial intermediation heightening the need to understand their behavior we introduce a new comprehensive database made publicly available on bank ownership including the home country of foreign banks for 5 324 banks in 137 countries over the period 1995 2009 we document large increases in foreign bank presence in many countries but with substantial heterogeneity in terms of host and banks home countries bilateral investment patterns and bank characteristics in terms of impact we document that the relation between private credit and foreign bank presence importantly depends on host country and banks characteristics specifically foreign banks only seem to have a negative impact on credit in low income countries in countries where they have a limited market share where enforcing contracts is costly and where credit information is limited available and when they come from distant home countries this shows that accounting for heterogeneity including bilateral ownership is crucial to better understand the implications of foreign bank ownership

how did bank holding companies prosper in the 1990s abstract this paper examines the improved performance of us bank holding companies bhcs from 1991 to 1997 analysis of cost and profit functions using several alternative output specifications suggests that the gains were primarily due to productivity growth and changes in scale economies various econometric methodologies yield productivity growth of about 0 4 per year and the optimal size seems to have increased in the 1990s era of deregulation technological change and financial innovation estimates of both productivity growth and economies of scale are robust across traditional and non traditional output specifications despite the overall success however substantial cost and profit inefficiency existed for bhcs of all sizes in the 1990s these efficiency estimates are particularly sensitive to the output specification and failure to account for non traditional activities like off balance sheet obs items leads profit efficiency but not cost efficiency to be understated for the largest bhcs

returns to scale and input substitution for large u s banks the united states commercial banking industry has experienced significant changes in recent years the recent wave of mergers and the near term prospects of interstate banking suggests that the industry is moving toward much larger average banking organizations rhoades 1985 will a more concentrated banking industry result in lower costs due to scale economies we address this question by examining the cost function for large banks numerous studies of economies of scale in banking exist generally tracing their roots to the classic papers by benston 1965 and bell and murphy 1968 a good review of the most recent studies can be found in clark 1988 the majority of the papers uses samples of smaller banks that is under 1 billion in deposits finding generally that economies of scale are quickly exhausted and that further increases in bank size occur at constant or possibly increasing cost the extrapolation of previous findings for samples of smaller banks to large banks may be problematic especially in the current environment first large banks service a different mix of markets and customers than small banks suggesting that large and small banks probably face different cost structures second the process of deregulation may have rendered the results of prior studies moot since the data pertain to periods before significant deregulation since we

the value of private sector business credit information sharing the us case this paper investigates the value added by private information exchanges that share information on business payment performance we discuss how this information is collected and disseminated by the worlds largest private information broker dun bradstreet we provide the first empirical examination of the importance of this information at the lending decision level our findings indicate that exchange generated information provides significant explanatory power in failure prediction models controlling for other credit information that is easily available to lenders our study complements the work of jappelli and pagano information sharing lending and defaults cross country evidence centre for economic policy research discussion paper 2184 1999 who find in cross country macro level tests that information exchanges add value 2003 elsevier science b v all rights reserved

what factors cause foreign banks to stay in london the banking literature focuses extensively on the phenomenon of bank entry and pays less attention to the factors driving the continuation of banking activities in foreign markets in this paper we analyze this important but overlooked issue by constructing a unique database of foreign banks that continue operating and those that have withdrawn from arguably the world s most international banking center london this new data set comprises information on 408 offices from 77 countries spanning the period from 1945 to 1999 giving us 4643 observations of which 2795 represent offices that continue operating and 1848 that withdrew from london during this period our empirical work shows that the continuation of international banking activity in london is positively related to the setup of locally integrated organizational forms at entry the experience in the local market and the size of local operations continuation of banking activities is however negatively related to the setup of organizational forms integrated into the parent bank at entry and to the geographic distance of the home country to london we also find that higher global economic activity increases the likelihood of international banking operations continuing in london however the more volatile the global economic environment the greater the prospect of a cessation of this activity

welfare and child health the link between afdc participation and birth weight the stated goal of the aid for families with dependent children program is to improve the well being of children in poor families the program has come under considerable attack in recent years from critics who argue that participation in afdc is associated with maternal behaviors that are bad for children we investigate this question using birth weight as a measure of child health we find that participation in afdc during pregnancy is associated with delays in obtaining prenatal care smoking and drinking during pregnancy younger maternal age at the birth and ultimately with lower birth weights even when observable characteristics of the mother are controlled for however we show that when unobservable characteristics of the mother are controlled for there is actually a positive association between participation in afdc and the birth weights of children of white women from poor families we find no association between birth weight and maternal participation in afdc among black children

the location of financial sector fdi tax and regulation policy abstract this paper analyzes how corporate taxation and regulatory requirements affect the location of financial sector fdi we use novel information on new financial services entities established by multinational firms in 83 host countries we find a negative effect of host country taxes on the probability of choosing a particular host location we can also confirm a significant influence of the regulatory environment for example stricter equity capital requirements negatively affect location probabilities our empirical approach allows us to provide new insight in how a policy measure of a given country affects other countries by estimating cross country tax and regulation elasticities

international trade in banking services abstract this paper investigates which of the theories of international trade best explains trade in international banking in its various forms branches subsidiaries and representatives strong evidence is found to support the newer economies of scale theories and it is proposed that the foreign exchange and capital markets exhibit declining costs to production it is also discovered that the relaxation of exchange and capital controls by potential host countries diminishes the incentives of banks to seek direct representation

characteristics determining the efficiency of foreign banks in australia abstract the factors determining foreign bank efficiency are investigated using a three stage research method it is found that host market incumbency reduces efficiency of foreign banks in australia resulting in over use of inputs factors underlying the limited global advantage hypothesis of berger et al berger allen n deyoung robert genay hesna udell gregory f 2000 globalisation of financial institutions evidence from cross border banking performance brookings wharton papers on financial service 3 23 120 are identified in that nationality specific factors represented by dummy variables are not significant once other relevant effects are controlled for parent profitability is not found to result in increased host nation efficiency while parent credit rating effects are mixed some evidence is presented that banks from more financially sophisticated nations are more efficient the implications of these results are explored from the perspectives of bank management and bank regulators

fdi versus exports evidence from german banks abstract we use a new bank level dataset to study the fdi versus exports decision for german banks we extend the literature on multinational firms in two directions first we simultaneously study fdi and the export of cross border financial services second we test recent theories on multinational firms which show the importance of firm heterogeneity helpman e melitz m j yeaple s r 2004 export versus fdi american economic review 94 1 300 316 our results show that fdi and cross border services are complements rather than substitutes heterogeneity of banks has a significant impact on the internationalization decision more profitable and larger banks are more likely to expand internationally than smaller banks they have more extensive foreign activities and they are more likely to engage in fdi in addition to cross border financial services

exporting financial institutions management via foreign direct investment mergers and acquisitions we test the relevance of the new trade theory and the traditional theory of comparative advantage for explaining the geographic patterns of international m as of financial institutions between 1985 and 2000 the data provide statistically significant support for both theories we also find evidence that the u s has idiosyncratic comparative advantages at both exporting and importing financial institutions management