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Risk and the Corporate Structure of Banks

Risk and the Corporate Structure of Banks by International Monetary Fund
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We identify different sources of risk as important determinants of banks' corporate structures when expanding into new markets. Subsidiary-based corporate structures benefit from greater protection against economic risk because of affiliate-level limited liability, but are more exposed to the risk of capital expropriation than are branches. Thus, branch-based structures are preferred to subsidiary-based structures when expropriation risk is high relative to economic risk, and vice versa. Greater cross-country risk correlation and more accurate pricing of risk by investors reduce the differences between the two structures. Furthermore, the corporate structure affects bank risk taking and affiliate size.
International Monetary Fund; February 2010
26 pages; ISBN 9781452756103
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Title: Risk and the Corporate Structure of Banks
Author: International Monetary Fund