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Editor’s blogAugust 9 2016

Are regional banks really safer than their global counterparts?

With BNP Paribas announcing the sale of First Hawaiian Bank, Brian Caplen examines whether banks that do business through a narrow channel really are stronger that those with multiple earning sources.
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An analyst recently wrote about BNP Paribas: “Thanks to diversification across multiple geographies, products and revenue streams, BNP is able to find offsets to the sector-wide pressures facing its plain vanilla retail loan and deposit businesses.”

A short while later came the news that BNP Paribas is selling its 15% stake in First Hawaiian Bank for $485m, the largest bank initial public offering in the US since Royal Bank of Scotland spun off Citizens Financial Group two years ago. 

While the Citizens spin off was motivated by the desire of the UK government – the main shareholder of RBS following its bail-out in the financial crisis – to focus the bank purely on the UK market, the move by BNP Paribas has more to do with US restrictions on foreign-owned banks. 

The requirement by US regulators for foreign-owned banks to group together their assets under an intermediate holding company has been a catalyst in the reorganising and focusing of businesses. 

It is difficult to believe on a common sense basis that the banks that emerge at the end of this process will be stronger than they were previously based on these acts alone. A bank with multiple earnings sources must be more stable than a narrower bank – the most risky type of bank being a property lender in a single domestic market. 

The sale of First Hawaiian Bank doesn’t change the diversified character of BNP Paribas very much. It still owns Bank of the West in the US, and has major franchises in Belgium, Italy and elsewhere. It spans the range of banking activities from wealth management to capital markets to commercial and retail banking. 

But are regulators really getting it right in putting in place regulations that make banks more homebound and more narrowly focused?

Brian Caplen is the editor of The Banker.

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