Home-Host Banking Issues and Non-Core Funding—Evidence from Central and Eastern Europe

Abstract

This paper investigates the role of home monetary policy stance and banking regulation on short-term noncore funding in Central, Eastern and Southeastern Europe using a sample of local subsidiaries. We find that the accumulation and dynamic of noncore funding differ significantly between subsidiaries in EU vs. non-EU host countries. While the direct impact of home monetary policy is to a certain extent limited it is amplified through several channels. The most potent among them are the characteristics of the parent bank: capitalization, liquidity, loan growth aggressiveness, provisioning policies and its relative size vis-à-vis a subsidiary. Regulation has only marginal effects and seems to be more potent for the subsidiaries operating in the EU countries. At the same time, host bank regulation seems neutral to the dynamics of the noncore funding and risk build-up on the liability side of the subsidiaries operating under those regimes.

International Financial Integration and Funding Risks: Bank-Level Evidence from Latin America

“…More specifically, they are consistent with results regarding corporate leverage ratios in emerging economies (Stiglitz, 2000;Booth et al, 2001;Lucey and Zhang, 2011), as well as with the results concerning the maturity structure of sovereign borrowing (Broner et al, 2013). Last but not least, our results add to the literature on the risk-taking channel of monetary policy in a cross-border environment (e.g., Babin, 2015;Ioannidou et al, 2015) by underlining that an expansionary monetary policy in the US disproportionately affects the funding structure of banks in peripheral economies and, thereby, their financial stability if the capital account is liberalized.…”

“…This result is consistent with our conjecture that liberalization affects the funding structure of banks by changing the relative costs of the different types of funding. It adds to the literature that explores the risktaking channel of monetary policy in a cross-border environment (e.g., Babin, 2015;Ioannidou et al, 2015) by underlining that an expansionary monetary policy in the US disproportionately affects the funding structure of banks in peripheral economies-and, thereby, their financial stability-if the capital account is liberalized.…”