Regulatory Arbitrage and International Bank Flows

By Joel F. Houston, Chen Lin, Yue Ma. 2011

353 citations recorded by the source corpus.

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, that without a strong institutional environment, lax regulations are not enough to encourage massive capital flows.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/f7a63940a97045d594aedcf34d70425bdc9eaef5

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Citations in the corpus

Cross-Border Prudential Policy Spillovers: How Much? How Important? Evidence from the International Banking Research Network (2016, background): “Houston, Lin, and Ma (2012) use Vol. 13 No.”
Institutional development and bank stability: Evidence from transition countries (2014, background): “Recent studies have suggested that multinational banks tend to take advantage of the cross-country differences in regulations to lend more and lend with lower standard to countries where banking regulation is less strict (Houston et al., 2012; Ongena et al., 2013).”
Regulatory Arbitrage and Cross-Border Bank Acquisitions: Regulatory Arbitrage and Cross-Border Bank Acquisitions (2015, neutral): “As in other studies (Houston et al. 2012), we use geographic latitude - as a proxy for geographical environment- and ethnic fractionalization as instruments because these have been shown to be important factors in determining the shape of financial institutions (Acemoglu, Johnson, and 22 The…”
Earnings Management within Multinational Corporations (2018, background): “6 For instance, Houston et al. (2012) show that cross-country differences in”