Term structure of bank flows to emerging countries: what effects of short- vs. long-term regulatory arbitrage are?

Considering the literature of economic stability, the need to analyze short-term external bank flows is particularly obvious to prevent the contagion crisis. Moreover, the context of crisis has put prudential regulation at the center of the current debate in this literature. In this paper, we offer a new perspective on the role of regulation as a determinant of banking flows maturity, with a focus on the issue of short-term vs. long-term regulatory arbitrage. Indeed, regulatory arbitrage that favors short-term bank flows is a destabilizing factor of the financing of these countries as they have experienced major crises due to the external financing volatility. We adopt a macroeconomic approach to study the importance of bank regulation adjustments as a determinant of bank flows maturity from 12 developed countries to 37 emerging countries for the period 1990-2014. The results confirm the significant effect of risk-based regulation on the term structure of bank flows to emerging countries, especially to speculative countries.