Title

Regulatory arbitrage and international bank flows

Document Type

Journal article

Source Publication

Journal of Finance

Publication Date

10-1-2012

Volume

67

Issue

5

First Page

1845

Last Page

1895

Abstract

We study whether cross-country differences in regulations have affected international bank flows. We find strong evidence that banks have transferred funds to markets with fewer regulations. This form of regulatory arbitrage suggests there may be a destructive "race to the bottom" in global regulations, which restricts domestic regulators' ability to limit bank risk-taking. However, we also find that the links between regulation differences and bank flows are significantly stronger if the recipient country is a developed country with strong property rights and creditor rights. This suggests that, while differences in regulations have important influences, without a strong institutional environment, lax regulations are not enough to encourage massive capital flows.

DOI

10.1111/j.1540-6261.2012.01774.x

Print ISSN

00221082

E-ISSN

15406261

Publisher Statement

Copyright © 2012 The American Finance Association

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Recommended Citation

Houston, J. F., Lin, C., & Ma, Y. (2012). Regulatory arbitrage and international bank flows. Journal of Finance, 67(5), 1845-1895. doi: 10.1111/j.1540-6261.2012.01774.x