International Banking and Cross-Border Effects of Regulation: Lessons from France

Abstract

As part of the International Banking Research Network, the Banque de France contribution to the research project on prudential policy spillovers concentrates on the “outward” adjustment of French banks’ cross-border lending. We consider both adjustment of cross-border lending to foreign (“destinationcountry”) and French (“home-country”) regulation and investigate differences between financial and non-financial counterparties. For some regulatory measures, we find that French banks increase their cross-border lending growth in response to regulatory tightening abroad—presumably because they are not subject to these regulatory changes. All in all, we do not find particularly large quantitative adjustments to changes in foreign regulatory policies. Lastly, we find that balance sheet variables are important for the adjustment of crossborder lending growth in response to French regulatory policy changes.