Discussion - Are International Banks Different? · Subsidiary or Branch Model? • Host authorities...
Transcript of Discussion - Are International Banks Different? · Subsidiary or Branch Model? • Host authorities...
Discussion of
Are International Banks Different?
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TOBIAS ADRIAN, IMF FINANCIAL COUNSELLORBIS ANNUAL CONFERENCE – JUNE 2018
What is the paper about?
Degree of bank internationalization
Performance
Cyclicality of lending in home
country
Cyclicality of lending in host
countries
Strategy
Some key findings
Greater bank internationalization
Worse performance
Lower share of noninterest
income
Less deposit funding
More cyclicality of AE banks in
developing host country
Less cyclicality in home country
Comments
• Cross-border banking versus local banking via subsidiaries• A few stylized facts on G-SIBs’ degree / mode of foreign presence
• Role of relative profitability at home / abroad• Role of funding model• Role of line of business
• Regulation on “international” banking in home / host countries• Could help strengthen identification• Current regulatory issues
3
Cross-border banking remains larger than local banking
Source: Avdjiev, Aysun, and Hepp (2017)
G-SIBs’ relative profitability across locationsis a key driver of foreign expansion
G-SIBs ROA: Foreign Subsidiaries vs Home Subsidiaries 2014-16 Average, Percent
Source: Caparusso, Chen, Dattels, Goel, and Hiebert (forthcoming IMF WP)
G-SIBs ROA Differential and Internationalness Index 2014-16 Average, Percent
China
Japan
EUR ex UKUK
USA
0
10
20
30
40
50
60
-60 -30 0 30 60 90
Deg
ree
of in
tern
atio
naln
essi
ndex
(201
4-16
ave
rage
s)
RoA differentials of foreign and domestic bank subsidiaries (2014-16 averages, basis points)
0.0
0.3
0.6
0.9
1.2
1.5
China USA Japan EUR ex UK UK
Foreign Domestic
G-SIBs have a profitability gap in emerging markets
6
ROA: G-SIB’s Foreign Subsidiaries vs Domestic Incumbents(2014-2016 average)
Source: Caparusso, Chen, Dattels, Goel, and Hiebert (forthcoming IMF WP)
Greater multinationalization<-> Larger consumer business
7
BPCE
RBSBARC
UBS
MSWFCSG
NORD
BOC
INGSAN
BNY
STT
ABC
CCB
CA
JPM
STANC
BAC
HSBC
DB
GS
CS
R² = 0.142
0%
20%
40%
60%
80%
100%
120%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Degr
eeof
Sub
sidi
ariz
atio
n --
Bank
Global Consumer Intensity
Bubble size proportional to
degree of internationalization
Subsidiarization and Global Consumer Intensity
Source: Caparusso, Chen, Dattels, Goel, and Hiebert (forthcoming IMF WP)
Greater multinationalization<-> Greater local funding
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BPCE
RBSBARC
MSWFC SG
ING SAN
BNY
STT
JPM
STAN C
BAC
HSBC
DB
R² = 0.4362
0%
20%
40%
60%
80%
100%
120%
0% 20% 40% 60% 80% 100%
Degr
ee o
f Sub
sidi
ariz
atio
n -B
ank
Localization of Foreign Office Funding
Bubble size proportional to
consumer intensity
Subsidiarization and Overseas Office Funding Localization
Source: Caparusso, Chen, Dattels, Goel, and Hiebert (forthcoming IMF WP)
Use changes in regulation on “international” banking operations (in foreign countries) as a source of exogenous variation ?
Share of Countries that Tightened Regulations on International Banking Operations between 2006 and 2014, by Region (Percent)
0.0
0.1
0.2
0.3
0.4
0.5
AE excludingeuro area
Selected euroarea economies
Other euro areaeconomies
Emerging marketeconomies
1. Home Countries
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
AE excluding euroarea
Selected euroarea economies
Other euro areaeconomies
Emerging marketeconomies
2. Host Countries
9Source: April 2015 GFSR
Effect of regulation on foreign banking
10
-50
-40
-30
-20
-10
0
10
20
Foreign Cross-border Local
Regulations on international operations of banksGeneral banking regulations such as capital requirementsOtherClaims to GDP growth
Contributions of Regulatory Changes to Growth in Claims-to-GDP Ratio
Typesof claims
Source: April 2015 GFSR
Comments on selected regulatory issues
• Ring-fencing• Specificities of a banking union• Internationalization of EM / LIC banks• Correspondent banking relationships
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Conclusion: in search of identification
Degree of bank internationalization
Performance
Cyclicality of lending in home
country
Cyclicality of lending in host
countries
Strategy
Additional Background
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Subsidiary or Branch Model?
• Host authorities try to minimize financial stability risks by ensuring that foreign banks’ affiliates maintain sufficient capital and liquidity buffers easier under a subsidiary model
• One size doesn’t fit all: • diversity of business models, • differences in regulatory and tax regimes, • varying stages of financial development in host countries
• From a financial stability viewpoint, neither model outperforms the other in reducing both probability and cost of a banking group failure
• Mechanisms to ensure effective oversight and orderly resolution are a more effective route to resolving the efficiency-financial stability trade-off
Diversity of business models
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Source: Caparusso, Chen,Dattels, Goel, and Hiebert(forthcoming IMF WP)
G-SIBs have a different business model than domestic incumbents in EMs
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Decomposition of ROA difference(2014-16 average)
Source: Caparusso, Chen,Dattels, Goel, and Hiebert(forthcoming IMF WP)
Changes in regulation on “international” banking by type
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Share of Countries that Changed Regulations on International Banking Operations between 2006 and 2014
0
5
10
15
20
25
30
35
Any
regu
latio
n
Pres
ence
Activ
ity
Supe
rviso
rydi
scre
tion
Info
rmat
ion
Depo
sitor
insu
ranc
e
Oth
er
TightenedLoosened
1. Home Countries(Percent)
0
10
20
30
40
50
60
70
80
Any
regu
latio
n
Pres
ence
Activ
ity
Supe
rviso
rydi
scre
tion
Info
rmat
ion
Reso
lutio
n
Oth
er
TightenedLoosened
2. Host Countries
ff l l
Source: April 2015 GFSR
Ring-fencing
• What is needed to prevent ring-fencing:• Better information sharing between home and host authorities• Supervisory colleges joint risk assessments• Crisis management groups group and firm-specific resolution plans
• Until sufficient progress is made in these directions, “ex-ante subsidiarization” remains an understandable ‘temptation’ and, in the end, a preferable option than discretionary ring-fencing during a crisis
International banking in a banking union
• Even in highly integrated areas, the incentive to ring-fence remains strong, without a completely common safety net e.g. in the Euro Area, the banking union needs to be completed with common deposit insurance and public backstop…
• … but financial integration requires more than no-ring fencing:• less fragmentation/further harmonization: e.g. reduce fragmentation in bank
insolvency laws that allow national authorities to avoid a substantial application of BRRD/bail-in
• coordinate/harmonize ELA and eventually centralize• greater centralization of supervision including 3rd country branches,
investment firms• more convergence in supervisory practices (esp. on-site)
“International” banks headquartered in EMs / LICs
• “International” banks from EMs / LICs (e.g. pan-African banks):• facilitate economic and financial integration; • promote transfer of knowledge and technology; • foster competition, contributing to financial innovation; • enhance financial inclusion; • and support the financing of local infrastructure.
• But risks stemming from cross-border banking are also high: as these groups expand, new channels for transmission of macro-financial risks and spillovers across home and host countries may emerge
• Enhanced cross-border cooperation on regulation, supervision and crisis management is needed, in particular to support effective supervision on a consolidated basis and cross-border resolution
Correspondent banking relationships
-25%
-20%
-15%
-10%
-5%
0%
5%
Africa Americas(excl. North
America)
NorthAmerica
Asia Oceania Europe(excl.
EasternEurope)
EasternEurope
Number of active counterparty countries by region(average percent change across region)
Jan. 2011 - Jun. 2017 Dec. 2016 - Jun. 2017
Source: FSB, SWIFT Watch, National Bank of Belgium.
The decline in CBRs continues: overall concentration of correspondents has decreased since 2015
While it seems to have stabilized in some areas (e.g. Caribbean), financial fragilities remain in some countries
Drivers of CBR pressures remain the same (e.g. lack of clarity over regulatory expectations; weaknesses in regulatory and supervisory frameworks, including for AML/CFT); but also some financial integrity issues (e.g. corruption, transparency, sanctions)
Potential negative impact on financial inclusion and remittances requires continued attention
IMF multipronged approach:• Monitor risks• Assess macro-criticality of this issue• Provide targeted technical assistance &
training• Facilitate dialogue• Collaborate with other stakeholders