Kiel Working Papers, Kiel Institute for World Economics
No 932:
Capital Mobility in Euroland ; The Role of Banks
Claudia M. Buch
Abstract: The introduction of the euro marks a milestone in the
process of European financial market integration. This paper analyzes the
implications of the euro for cross-border banking activities. A portfolio
model is used which captures the role of banks as providers of
informational and of risk-diversification services. By eliminating exchange
rate risks, the euro enhances the incentives of banks to expand within
Euroland. Yet, while the currency bias in bank portfolios will be
eliminated, the home bias will remain. It is also argued that positive
diversification effects may outweigh possible negative effects on the risk
taking of banks.
Keywords: capital mobility, European financial integration, banking, asymmetric information, portfolio choice; (follow links to similar papers)
JEL-Codes: D82; F36; G21; (follow links to similar papers)
34 pages, June 1999
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