Subsidiaries and Branches: Does One Size Fit All?
29 Pages Posted: 18 May 2011
Date Written: March 7, 2011
The paper examines the relative advantages of different organizational structures for cross-border banking groups and their home and host countries, and discusses the factors influencing a banking group’s choice of branch versus subsidiaries, as well as the financial stability implications for home and host countries. It concludes that, given the diversity of business lines and the varying stages of financial development of different countries, there is no one optimal structure for cross-border expansion. It also notes that, in the absence of an effective cross-border resolution framework, resolving cross-border banking groups organized as subsidiaries may be less costly or destabilizing than resolving groups organized as branches. The ultimate key to financial stability, however, lies in the design of mechanisms that ensure effective oversight and orderly resolution of banks, both at a national and global level. Achieving this objective would reduce financial stability risks of home and host countries and allow banks to organize themselves in a way that best fits their business models.
Keywords: Cross-Border Banking, Financial Stability, Financial Regulation, Stand-Alone Subsidiarization, Ring Fencing, Subsidiaries, Branches, Resolution
JEL Classification: G01, G20, G21, G28, G32
Suggested Citation: Suggested Citation