Risk and the Corporate Structure of Banks

February 1, 2010

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Format: Chicago

Risk and the Corporate Structure of Banks, (USA: International Monetary Fund, 2010) accessed September 19, 2024

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.

Subject: Bank credit, Banking, Credit risk, Financial institutions, Financial regulation and supervision, Foreign banks, Loans, Money, Organizational structure of revenue administration, Revenue administration

Keywords: Bank branches, Bank credit, Bank liability, Branch structure, Credit risk, Creditors price risk, Eastern Europe, Endogenize bank risk taking, Foreign banks, Limited liability, Loans, Organizational structure of revenue administration, Parent bank, Risk-taking incentive, Subsidiaries, Subsidiary structure, Western Europe, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/040
Stock No:

WPIEA2010040
ISBN:

9781451962901
ISSN:

1018-5941

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