Cross-Border Banking on the Two Sides of the Atlantic: Does It Have an Impact on Bank Crisis Management?

Maria J. Nieto and Larry D. Wall

Working Paper 2015-11
November 2015

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In the United States and the European Union (EU), political incentives to oppose cross-border banking have been strong in spite of the measurable benefits to the real economy from breaking down geographic barriers. Even a federal-level supervisor and safety net are not by themselves sufficient to incentivizing cross-border banking although differences in the institutional set-up are reflected in the way the two areas responded to the crisis. The U.S. response was a coordinated response, and the cost of resolving banks was borne at the national level. Moreover, the Federal Deposit Insurance Corporation (FDIC) could market failed banks to other banks irrespective of state boundaries, reducing the cost of the crisis to the U.S. economy and the sovereign finances. In the EU, the crisis resulted in financial market fragmentation and unbearable costs to some sovereigns. Moreover, the FDIC could market failed banks to other banks irrespective of state boundaries, reducing the cost of the crisis to the U.S. economy and the sovereign finances. In the EU, the crisis resulted in financial market fragmentation and unbearable costs to some sovereigns.

JEL classification: G01, G21, G28, K20, L51

Key words: cross-border banking, financial crisis, bankruptcy, European Union, United States


The authors thank participants at the 2015 Banking Law Symposium held at Queen Mary, University of London, for helpful comments. The views expressed here are the authors' and not necessarily those of the Banco de España, the Federal Reserve Bank of Atlanta, the Eurosystem or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Maria J. Nieto, Banco de España, Calle Alcalá 48, 28014 Madrid, Spain, +34 91 338 62 86, maria.nieto@bde.es, or Larry D. Wall, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, 404-498-8937, larry.wall@atl.frb.org.
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