THESIS
2019
ix, 102 pages : illustrations ; 30 cm
Abstract
Essay 1: This paper studies the implications of cross-country regulatory differences on banks’
transparency and stability abroad. Using a sample of multinational banks’ majority-owned
foreign subsidiaries, this paper finds that foreign subsidiaries’ transparency decreases when
their home countries have tighter activity restrictions than their host countries. The result is
more pronounced when parent banks have lower capital ratios or when host countries have
weaker supervisory power, suggesting that parent banks use opaque reporting practices to
conceal their risk-shifting behavior. This paper further finds that less transparent foreign
subsidiaries are more likely to fail or experience large deposit withdrawals during the 2007-
2009 financial crisis. To bolster the causal effec...[
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Essay 1: This paper studies the implications of cross-country regulatory differences on banks’
transparency and stability abroad. Using a sample of multinational banks’ majority-owned
foreign subsidiaries, this paper finds that foreign subsidiaries’ transparency decreases when
their home countries have tighter activity restrictions than their host countries. The result is
more pronounced when parent banks have lower capital ratios or when host countries have
weaker supervisory power, suggesting that parent banks use opaque reporting practices to
conceal their risk-shifting behavior. This paper further finds that less transparent foreign
subsidiaries are more likely to fail or experience large deposit withdrawals during the 2007-
2009 financial crisis. To bolster the causal effect of regulatory differences on transparency, this
paper uses difference-in-differences designs that take advantage of post-financial-crisis
banking reforms and cross-border acquisitions. Overall, this paper contributes to the literature
by documenting the impact of regulatory inconsistency on foreign subsidiaries’ transparency
and the economic consequences of the diminished transparency.
Essay 2: The European Union adopted bail-in provisions that require creditors to absorb losses
either through write-down or conversion of debt to equity when banks are close to insolvency.
This paper finds negative shareholder reactions and positive creditor reactions to events
associated with bail-in adoption. Further analysis shows that the positive creditor reactions are
primarily driven by debt instruments that have higher priority ranking in the bail-in process.
Exploiting the staggered transposition of the bail-in provisions into national law across member
states, this paper finds that banks experience a decrease in risk-taking subsequent to bail-in
implementation. Collectively, these findings suggest that bail-in provisions lead to risk-reduction
and mitigate shareholder-creditor conflicts. Further analyses show that banks are
more likely to serve as lead arrangers, require collateral, and shift loan portfolio concentration
to borrowers with prior lending relationships and lower growth opportunities. Overall, this
paper provides policy implications for the economic consequence of bail-in provisions and
highlights the importance of capital structure in bank risk-taking and lending behavior.
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