Executives as Agents: Expatriate managers in subsidiaries of multinational banks. ACES Working Papers, June 2012

Performance and behavior between domestic and foreign-owned banks are grounded in assumptions about the ability of parent banks to provide subsidiaries with capital and knowledge and to manage asymmetric information and agency problems in the parent-subsidiary relationship. We complement research on internal capital markets and investigate how foreign owners of banks in emerging markets use their power to appoint executives at their subsidiaries to manage agency problems in the parent-subsidiary relationship. We find that perceived corruption and poor ICRG risk scores are associated with the appointment of parent-country executives as supervisors on behalf of the foreign owner. By contrast, a focus on retail clients, the absence of organizational routines and poor creditor rights are associated with the appointment of host-country executives. These bank and country characteristics create agency problems within the subsidiary, but not necessarily between the subsidiary and its parent. As such, they create a need for host-country executives’ superior knowledge of local markets and staff rather than for the supervisory role of parent-country executives.

The ECB’s QE: Time to break the doom loop between banks and their governments. CEPS Policy Brief No. 328, March 2015

The recent crises have shown that the eurozone countries’ government debt is not immune to default. Applying a large-exposure requirement also to eurozone government debt would be a logical measure towards breaking the bank-government doom loop, given the low probability and high loss-given government default. But what would be the impact of the application of the large-exposure requirement on the banking sector as well as on government funding? This CEPS Policy Brief presents the results of a simulation exercise performed for 109 systemic banks in the eurozone, showing that their eurozone government debt portfolios would have to decrease by 3.2% or €63 billion, if a 50% of own-funds cap would be applied on large exposures. The eurozone central banks’ demand for sovereign bonds under the extended asset purchase programme further creates momentum to start gradually implementing the restriction.