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G Andrew Karolyi, John Sedunov, Alvaro G. Taboada, Cross-Border Bank Flows and Systemic Risk, Review of Finance, Volume 27, Issue 5, September 2023, Pages 1563–1614, https://doi.org/10.1093/rof/rfad001
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Abstract
We find that heightened cross-border bank flows are associated with lower systemic risk in a target country’s banking system. The reductions in systemic risk are stronger for flows coming from source countries with stronger regulatory oversight than the target country. Such cross-border bank flows linked to regulatory arbitrage are also associated with improvements in target banking sector profitability, asset quality, and efficiency. We assess several alternative channels of influence for cross-border bank flows but interpret the evidence on these flows as mostly consistent with a benign form of regulatory arbitrage.