Banks that straddle borders may not only do so via foreign subsidiaries; they can also conduct their cross-border banking activities via a branch or directly to customers. Existing studies on the impact of cross-border banking often focus on the cross-border activities via foreign subsidiaries. We use a unique hand-collected dataset with cross-border activities for the 61 largest European banks to study the impact cross-border banking has on the risk-return profile of an individual bank. Our results show that cross-border banking decreases banks’ risk, by lowering the insolvency risk and generating a more stable income profile.

International banking, Bank regulation, Financial stability, Risk, Geographical diversification
Financial Markets and the Macroeconomy (jel E44), Banks; Other Depository Institutions; Mortgages (jel G21), Government Policy and Regulation (jel G28)
dx.doi.org/10.1016/j.frl.2020.101525, hdl.handle.net/1765/131890
Finance Research Letters
Department of Finance

Duijm, P., & Schoenmaker, D. (2020). European banks straddling borders: Risky or rewarding?. Finance Research Letters. doi:10.1016/j.frl.2020.101525