Universität zu Köln

Sobiech, Anna L. ORCID: 0000-0002-3491-7664, Kgari, Lechedzani, Nguyen, Linh and Wilson, John O.S. (2025). Implicit guarantees and bank stability: Evidence from a quasi-natural experiment. Journal of International Economics, 155. pp. 1-13. ISSN 00221996

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Abstract

[Artikel-Nr.: 104094] Do parent bank implicit guarantees enhance or diminish the stability of foreign subsidiaries? Using a quasi-natural experiment in the form of a regulatory intervention which removed parent banks' option to provide financial support to affiliated foreign subsidiaries, we find a substantial increase in the overall default risk of foreign subsidiaries. Less stringent private and supervisory oversight in host countries exacerbates the adverse impacts on risk. Overall, the results align with the notion that a loss in implicit guarantees implies a decline in reputational capital and franchise value. Beyond financial stability, the intervention likely has economic implications. Foreign subsidiaries increase lending and deposit funding, particularly those with stronger initial capitalization. These patterns are consistent with risk-compensating behavior where subsidiaries, following the loss of parental guarantees, expand balance sheets to sustain funding and market presence. Our findings inform ongoing policy debates regarding the merits of implicit guarantees for bank stability.

Item Type:	Article
Creators:	Creators Email ORCID ORCID Put Code Sobiech, Anna L. UNSPECIFIED https://orcid.org/0000-0002-3491-7664 UNSPECIFIED Kgari, Lechedzani UNSPECIFIED UNSPECIFIED UNSPECIFIED Nguyen, Linh UNSPECIFIED UNSPECIFIED UNSPECIFIED Wilson, John O.S. UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-803533
Identification Number:	10.1016/j.jinteco.2025.104094
Journal or Publication Title:	Journal of International Economics
Volume:	155
Page Range:	pp. 1-13
Number of Pages:	13
Date:	May 2025
ISSN:	00221996
Language:	English
Faculty:	Faculty of Management, Economy and Social Sciences
Divisions:	Unspecified
Subjects:	Economics
Uncontrolled Keywords:	Keywords Language Implicit guarantees ; Bank stability ; Ringfencing ; Cross-border banking ; Africa English
['eprint_fieldname_oa_funders' not defined]:	Publikationsfonds UzK
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/80353