Risk and the Corporate Structure of Banks

Author/Editor:

International Monetary Fund

Publication Date:

February 1, 2010

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We identify different sources of risk as important determinants of banks' corporate structures when expanding into new markets. Subsidiary-based corporate structures benefit from greater protection against economic risk because of affiliate-level limited liability, but are more exposed to the risk of capital expropriation than are branches. Thus, branch-based structures are preferred to subsidiary-based structures when expropriation risk is high relative to economic risk, and vice versa. Greater cross-country risk correlation and more accurate pricing of risk by investors reduce the differences between the two structures. Furthermore, the corporate structure affects bank risk taking and affiliate size.

Series:

Working Paper No. 10/40

Subject:

English

Publication Date:

February 1, 2010

ISBN/ISSN:

9781451962901/1018-5941

Stock No:

WPIEA2010040

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

26

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