Bank Capital Requirements: Foreign Branch Behaviour and Threats to Financial Stability

I use the implementation of the BASEL III accord in Norway to study the behaviour of foreign branches when host countries domestic banks face higher capital requirements. Using a government database containing banks financial reporting. I determine that foreign branches increase their relative lending growth in the corporate market, while there are no other significant changes to the other lending segments. This result is robust when controlling for both time and bank fixed effects. I then analyze how these behavioral changes from foreign banks can lead to increased threats to financial stability. I do this by reviewing key empirical research that show the increased relative lending growth of foreign branches can lead to increased threats to financial stability. These threats originate from domestic firms increased reliance on foreign branches for their credit lines, increasing the host countries exposure to foreign countries economics crises