Foreign Bank Subsidiaries’ Default Risk During the Global Crisis: What Factors Help Insulate Affiliates from Their Parents?

D. Anginer, E. Cerutti, M.S Martinez Peria | The World Bank

This paper examines the association between the default risk of foreign bank subsidiaries and their parents during the global financial crisis, with the purpose of understanding what factors can help insulate affiliates from their parents. The sample consists of 93 publicly listed foreign subsidiaries, operating in 36 host developing countries and owned by 41 parent bank groups, headquartered in 24 home countries. The authors’ period of analysis is the peak of the global crisis: from September 2008 to December 2009. The paper finds evidence of a significant correlation between parent banks’ and foreign subsidiaries’ default risk. The correlation is low for subsidiaries that have higher capital, retail deposit funding, and profitability ratios that are more independently managed from their parents. Host country regulations also influence the extent to which shocks to the parents affect the subsidiaries’ default risk.

Zambia, Tunisia, Morocco, Kenya, Ghana, Egypt, Côte d'Ivoire , Botswana, Financial Crisis, Banking
Year of publication:
File size:
1865448 bytes