Assistant Professor of Economics Judit Temesvary held a seminar during the 14th Forum on Financial Market Regulation in April at the Law School at the University of Zurich. In her talk, titled “The Role of Regulatory Arbitrage in U.S. Banks’ International Lending Flows,” Temesvary discussed her recent research on the international regulation of banks.
The presentation was based on her paper about the prevalence, drivers and profitability of regulatory arbitrage in U.S. banks’ foreign activities. Temesvary said she based her analysis “on a bank-level dataset on the globally most active U.S. banks’ balance sheet as well as their cross-border, foreign affiliate lending and foreign market entry choices in a broad range of foreign countries in the 2003-2013 period.”
She said her “results show that U.S. banks lend significantly less and are less likely to maintain affiliates in host countries with more stringent bank regulations.” She found that commercial banks with a higher share of domestic ownership and a broad network of foreign lending partners exhibit the lowest degree of foreign regulatory arbitrage behavior, and that banks that engage in active regulatory arbitrage are significantly more profitable in their foreign activities.