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This paper presents a stylized analysis of the effects of ring-fencing (i.e., different restrictions on cross-border transfers of excess profits and/or capital between a parent bank and its subsidiaries located in different jurisdictions) on cross-border banks. Using a sample of 25 large European banking groups with subsidiaries in Central, Eastern and Southern Europe (CESE), we analyze the impact of a CESE credit shock on the capital buffers needed by the sample banking groups under different forms of ring-fencing. Our simulations show that under stricter forms of ring-fencing, sample banking groups have substantially larger needs for capital buffers at the parent and/or subsidiary level than under less strict (or in the absence of any) ring-fencing.

Banks and banking, International. --- Transfer pricing. --- Cost transfer pricing --- Intercompany pricing --- Interdivisional transfer pricing --- Internal transfer pricing --- Pricing --- International banking --- Offshore banking (Finance) --- Transnational banking --- Financial institutions, International --- International finance --- Banks and Banking --- Macroeconomics --- Money and Monetary Policy --- Industries: Financial Services --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- International Lending and Debt Problems --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financial Markets and the Macroeconomy --- Banking --- Finance --- Monetary economics --- Nonperforming loans --- Cross-border banking --- Credit --- Cross-border effects --- Banks and banking --- Loans --- Bulgaria

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Bank capital. --- Bank loans. --- Financial crises.

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The recent crisis has spurred the use of stress tests as a (crisis) management and early warning tool. However, a weakness is that they omit potential risks embedded in the banking groups’ geographical structures by assuming that capital and liquidity are available wherever they are needed within the group. This assumption neglects the fact that regulations differ across countries (e.g., minimum capital requirements), and, more importantly, that home/host regulators might limit flows of capital or liquidity within a group during periods of stress. This study presents a framework on how to integrate this risk element into stress tests, and provides illustrative calculations on the size of the potential adjustments needed in the presence of some limits on intragroup flows for banks included in the June 2011 EBA stress tests.

Finance --- Business & Economics --- International Finance --- Banks and banking, International --- Banks and banking --- Risk management --- Econometric models. --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- International banking --- Offshore banking (Finance) --- Transnational banking --- Financial institutions --- Money --- Financial institutions, International --- International finance --- Banks and Banking --- Finance: General --- International Lending and Debt Problems --- Financial Aspects of Economic Integration --- International Financial Markets --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Financial services law & regulation --- Stress testing --- Countercyclical capital buffers --- Foreign banks --- Financial sector policy and analysis --- Financial regulation and supervision --- Capital adequacy requirements --- Cross-border banking --- Financial services --- Financial risk management --- Asset requirements --- Banks and banking, Foreign --- Czech Republic

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A cross-country comparative analysis shows that there is substantial room for further integration of China into global financial markets, especially in the case of the international bond market. A further successful liberalization of the Chinese bond market would encompass not only loosening bond market regulations, but also further developing of other markets, notably the foreign exchange market. Even though the increased integration of China into international capital markets would increase its exposure to the global financial cycle, the costs in terms of monetary autonomy would not be large given China’s size and especially under a well-articulated macroeconomic framework.

Bond market --- Capital market --- Bond markets --- Market, Bond --- Finance: General --- Investments: Bonds --- Financial Aspects of Economic Integration --- International Business Cycles --- International Financial Markets --- General Financial Markets: General (includes Measurement and Data) --- Finance --- Investment & securities --- Securities markets --- Emerging and frontier financial markets --- Stock markets --- Bonds --- Currency markets --- Financial markets --- Financial institutions --- Financial services industry --- Stock exchanges --- Foreign exchange market --- China, People's Republic of

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This paper analyses the nature of the increasing regionalization process in global banking. Despite the large decline in aggregate cross-border banking lending volumes, some parts of the global banking network are currently more interlinked regionally than before the Global Financial Crisis. After developing a simple theoretical model capturing banks' internationalization decisions, our estimation shows that this regionalization trend is present even after controlling for traditional gravitational variables (e.g. distance, language, legal system, etc.), especially among lenders in EMs and non-core banking systems, such as Australia, Canada, Hong Kong, and Singapore. Moreover, this regionalization trend was present before the GFC, but it has increased since then, and it seems to be associated with regulatory variables and the opportunities created by the retrenchment of several European lenders.

Monetary policy. --- Monetary management --- Economic policy --- Currency boards --- Money supply --- Banks and Banking --- Macroeconomics --- Money and Monetary Policy --- Financial Risk Management --- International Lending and Debt Problems --- Financial Aspects of Economic Integration --- International Finance: Other --- International Financial Markets --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financial Crises --- Banking --- Monetary economics --- Economic & financial crises & disasters --- Foreign banks --- Bank credit --- Cross-border banking --- Global financial crisis of 2008-2009 --- Financial institutions --- Money --- Financial services --- Financial crises --- Banks and banking --- Banks and banking, Foreign --- Credit --- International finance --- Global Financial Crisis, 2008-2009 --- United States