Implicit guarantees and bank stability: Evidence from a quasi-natural experiment

• 成果类型: Article
• 署名作者: Sobiech, Anna L.; Kgari, Lechedzani; Nguyen, Linh; Wilson, John O. S.
• 署名单位: University of Cologne; University of St Andrews
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2025.104094
• 发表日期: 2025
• 关键词: Implicit guarantees; Bank stability; Ringfencing; Cross-border banking; AFRICA

摘要

Do parent bank implicit guarantees enhance or diminish the stability of foreign subsidiaries? Using a quasi-natural experiment in the form of a regulatory intervention which removed parent banks' option to provide financial support to affiliated foreign subsidiaries, we find a substantial increase in the overall default risk of foreign subsidiaries. Less stringent private and supervisory oversight in host countries exacerbates the adverse impacts on risk. Overall, the results align with the notion that a loss in implicit guarantees implies a decline in reputational capital and franchise value. Beyond financial stability, the intervention likely has economic implications. Foreign subsidiaries increase lending and deposit funding, particularly those with stronger initial capitalization. These patterns are consistent with risk-compensating behavior where subsidiaries, following the loss of parental guarantees, expand balance sheets to sustain funding and market presence. Our findings inform ongoing policy debates regarding the merits of implicit guarantees for bank stability.