Limits to international banking consolidation

Arbeitspapier

Heterogenous banking supervision and regulation is often considered as the most important impediment for Pan-European Bank mergers. In this paper we identify other more fundamental reasons for a limited degree of cross-country integration in retail banking. We argue that the distribution of regional liquidity shocks may pose a natural limit to the extent of cross-border bank mergers. The paper derives the impact of different underlying stochastic structures on the optimal structure of cross regional bank mergers. Imposing a symmetry restriction on the underlying stochastic structure of liquidity shocks we find that benefits from diversification and the costs of contagion may be optimally traded off if banks from some but not from all regions merge. Under an additional monotonicity assumption full integration is only desirable if the number of regions with diverse risks is sufficiently large.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 2 ; No. 2006,11

Classification and Topics

• Classification: Wirtschaft ; Allocative Efficiency; Cost-Benefit Analysis ; Financial Markets and the Macroeconomy ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: Bank Mergers ; Financial Integration ; Liquidity Transformation ; Liquidity Crisis ; Risk Sharing ; Retail Banking ; Internationale Bank ; Bankenliquidität ; Mehr-Länder-Modell ; Bank ; Marktintegration ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Grüner, Hans Peter ; Fecht, Falko
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/19758
• Last update: 10.03.2025, 11:44 AM CET