Uneven Regulatory Playing Field and Bank Transparency Abroad

HKUST IEMS Thought Leadership Briefs No. 37

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Tai-yuan Chen

Restrictive home-country regulations lead to degraded transparency abroad and exert negative externalities on the global banking system. Our finding that the negative externalities primarily exist in countries with weak supervisory power highlights the importance of bank supervision when regulators consider using lax regulations to attract foreign capital. Tighter home-country regulations reduce the transparency of banks’ foreign subsidiaries. Our result highlights the importance of monitoring disclosure practices among banks’ foreign subsidiaries.
 

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