What factors cause foreign banks to stay in London?

Abstract

This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent repository link AbstractThe banking literature focuses extensively on the phenomenon of bank entry and pays less attention to the factors driving the continuation of banking activities in foreign markets. In this paper, we analyze this important, but overlooked, issue by constructing a unique database of foreign banks that continue operating and those that have withdrawn from arguably the world's most international banking center -London. This new data set comprises information on 408 offices from 77 countries spanning the period from 1945 to 1999, giving us 4,643 observations, of which 2,795 represent offices that continue operating and 1,848 that withdrew from London during this period. Our empirical work shows that the continuation of international banking activity in London is positively related to: the initial organizational form; the experience in the local market; and the size of local operations. We also find that continuation of banking activities is negatively related to the presence of domestic competitors and to the geographical distance of the home country to London. We also find that higher global economic activity increases the likelihood of international banking operations continuing in London; however, the more volatile the global economic environment, the greater the prospect of a cessation of this activity.

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