Banks organize their foreign affiliates as separately
incorporated subsidiaries, or as branches whose
liabilities represent claims on the parent institution.
Different risks influence this decision.
Subsidiary-based corporate structures benefit from the
greater protection against economic (credit) risk
provided by affiliate-level limited liability, but are
more exposed to the risk of capital expropriation,
against which branch structures are protected. Moreover,
branch structures benefit fromamore efficient internal
market for bank capital. Greater cross-country risk
correlation and more accurate pricing of risk by
investors reduce the differences between the two
structures. Finally, the bank’s corporate structure
affects risk taking and affiliate size. Abstract, full
text available for download. 2008
