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Using a unique hand-collected dataset of 1,251 European Union banks and 20,850 foreign affiliates hosted in 154 countries, this paper investigates how both host country and home country regulations affect the decision on where and how to go abroad in developing countries as opposed to developed countries. We find that banks prefer high-income countries with numerous activity restrictions and weaker supervision but less developed countries with less restrictions and stronger supervision. In all cases, they avoid locations with stronger capital regulation than at home. Regarding the choice of foreign organizational form (branches versus subsidiaries), banks rather operate subsidiaries in both high and middle-income countries with stringent entry requirements but prefer branches in developing countries with stringent capital requirements and greater supervisory power. Our findings contribute to the literature examining bank internationalization and have several policy implications for regulatory reforms in developing and developed countries.

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Using a unique hand-collected dataset of 1,251 European Union banks and their 20,850 foreign affiliates hosted in 154 countries, this paper investigates how both host country and home country regulation affects their decision on how to go abroad to both developed and developing countries. Controlling for various factors, we find that host country banking regulation is an important factor in explaining organizational form (subsidiaries versus branches), but that such a factor is strongly influenced by the level of development of the host country. While banks are very careful in limiting their expansion to the relatively safest world countries, they are more likely to open branches rather than subsidiaries in countries with stringent activity restrictions and capital requirements; especially when they are relatively less efficient. Additionally, retail-oriented banks tend to prefer to operate subsidiaries in the most developed countries and competitive markets