Bankers Without Borders? Implications of Ring-Fencing for European Cross-Border Banks

Author/Editor:

Yuliya Makarova ; Anna Ilyina ; Christian Schmieder ; Eugenio M Cerutti

Publication Date:

November 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:

This paper presents a stylized analysis of the effects of ring-fencing (i.e., different restrictions on cross-border transfers of excess profits and/or capital between a parent bank and its subsidiaries located in different jurisdictions) on cross-border banks. Using a sample of 25 large European banking groups with subsidiaries in Central, Eastern and Southern Europe (CESE), we analyze the impact of a CESE credit shock on the capital buffers needed by the sample banking groups under different forms of ring-fencing. Our simulations show that under stricter forms of ring-fencing, sample banking groups have substantially larger needs for capital buffers at the parent and/or subsidiary level than under less strict (or in the absence of any) ring-fencing.

Series:

Working Paper No. 10/247

Subject:

Frequency:

Biannually

English

Publication Date:

November 1, 2010

ISBN/ISSN:

9781455209477/1018-5941

Stock No:

WPIEA2010247

Format:

Paper

Pages:

35

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