Regulatory Arbitrage and International Bank Flows

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)1845-1895
Journal / PublicationJournal of Finance
Volume67
Issue number5
Publication statusPublished - Oct 2012
Externally publishedYes

Abstract

We study whether cross-country differences in regulations have affected international bank flows. We find strong evidence that banks have transferred funds to markets with fewer regulations. This form of regulatory arbitrage suggests there may be a destructive "race to the bottom" in global regulations, which restricts domestic regulators' ability to limit bank risk-taking. However, we also find that the links between regulation differences and bank flows are significantly stronger if the recipient country is a developed country with strong property rights and creditor rights. This suggests that, while differences in regulations have important influences, without a strong institutional environment, lax regulations are not enough to encourage massive capital flows. © 2012 The American Finance Association.

Citation Format(s)

Regulatory Arbitrage and International Bank Flows. / Houston, Joel F.; Lin, Chen; Ma, Yue.

In: Journal of Finance, Vol. 67, No. 5, 10.2012, p. 1845-1895.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal