Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/19758
Authors: 
Grüner, Hans Peter
Fecht, Falko
Year of Publication: 
2006
Series/Report no.: 
Discussion Paper, Series 2: Banking and Financial Supervision 2006,11
Abstract: 
Heterogenous banking supervision and regulation is often considered as the most important impediment for Pan-European Bank mergers. In this paper we identify other more fundamental reasons for a limited degree of cross-country integration in retail banking. We argue that the distribution of regional liquidity shocks may pose a natural limit to the extent of cross-border bank mergers. The paper derives the impact of different underlying stochastic structures on the optimal structure of cross regional bank mergers. Imposing a symmetry restriction on the underlying stochastic structure of liquidity shocks we find that benefits from diversification and the costs of contagion may be optimally traded off if banks from some but not from all regions merge. Under an additional monotonicity assumption full integration is only desirable if the number of regions with diverse risks is sufficiently large.
Subjects: 
Bank Mergers
Financial Integration
Liquidity Transformation
Liquidity Crisis
Risk Sharing
JEL: 
D61
E44
G21
Document Type: 
Working Paper

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