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Extraterritoriality of swaps regulation and regulatory arbitrage

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  • Carmela D’Avino

    (ICN Business School
    Université de Lorraine)

Abstract

In this paper, we investigate how the extraterritorial applicability of the US over-the-counter derivatives regulation impacts the off-balance sheet positions of foreign branches of US banks. While existing research has focused on the effects of the regulation on swap markets’ liquidity, we contribute to the literature by looking at off-balance sheet exposures, focusing on geographically disaggregated data. Swaps exposures are found to increase in those jurisdictions in which limited extraterritoriality applies due to the substitute compliance framework. Furthermore, we find an increase in futures and forwards exposures in foreign branches located in host countries that fully comply with the extraterritoriality. Our results are consistent with a geographical and cross-product regulatory-induced activities reallocation.

Suggested Citation

  • Carmela D’Avino, 2019. "Extraterritoriality of swaps regulation and regulatory arbitrage," Journal of Regulatory Economics, Springer, vol. 56(2), pages 167-187, December.
    • Handle: RePEc:kap:regeco:v:56:y:2019:i:2:d:10.1007_s11149-019-09395-8
    DOI: 10.1007/s11149-019-09395-8
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    References listed on IDEAS

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    More about this item

    Keywords

    US banks; Foreign branches; Interest rate swaps; OTC derivatives regulation;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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