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Risk and the Corporate Structure of Banks

Author/Editor: Dell'Ariccia, Giovanni | Marquez, Robert
Authorized for Distribution: February 1, 2010
Electronic Access: Free Full Text (PDF file size is 1,002KB)
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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.
 
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Series: Working Paper No. 10/40
Subject(s): Capital | Corporate governance | Credit risk | Economic models | Financial risk | Foreign direct investment | International banking | International banks | Political economy
Author's keyword(s): Bank branches; subsidiaries
 
English  
    Published:   February 1, 2010        
            Format:   Paper
    Stock No:   WPIEA2010040   Pages:   25
    Price:   US$18.00
       
     
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