NBER Publications by Francisco Rodriguez-Fernandez

Banks are in the business of taking calculated risks. Expanding the geographic footprint of an organization’s profit-making activities changes the geographic pattern of its exposure to loss in ways that are hard for regulators and supervisors to observe. This paper tests and confirms the hypothesis that differences in the character of safety-net benefits that are available to banks in individual EU countries help to explain the nature of cross-border merger activity. If they wish to protect taxpayers from potentially destabilizing regulatory arbitrage, central bankers need to develop statistical procedures for assessing supervisory strength and weakness in partner countries. We believe that the methods and models used here can help in this task.

EU financial safety nets are social contracts that assign uncertain benefits and burdens to taxpayers in different member countries. To help national officials to assess their taxpayers' exposures to loss from partner countries, this paper develops a way to estimate how well markets and regulators in 14 of the EU-15 countries have controlled deposit-institution risk-shifting in recent years. Our method traverses two steps. The first step estimates leverage, return volatility, and safety-net benefits for individual EU financial institutions. For stockholder-owned banks, input data feature 1993-2004 data on stock-market capitalization. Parallel accounting values are used to calculate enterprise value (albeit less precisely) for mutual savings institutions. The second step uses the output fro...