Where Do Banks Expand Abroad? An Empirical Analysis*

Abstract

This paper investigates the determinants of the pattern of banks' foreign investment. We extended previous analyses in three directions. First, we use a unique database that includes information on 260 large banks from OECD countries and all their foreign branches and subsidiaries in each one of the other OECD countries. Second, we consider explicitly the role of institutional and regulatory characteristics. Third, we considered within a unified framework a wide set of variables that are likely to influence the pattern of bank internationalization. Consistent with previous research, we find that a high degree of integration between the home and the destination countries has an effect on the location choice of multinational banks. However, we also find that the marginal effect of integration is much lower than that of other explanatory variables. Profit opportunities resulting from a high expected economic growth and the prospect of competing with relatively less efficient banks appear to be a key factor affecting the expansion abroad, especially in the case of subsidiaries. Institutional characteristics of the destination country also play a crucial role. For example, financial centers attract branches of foreign banks, but not subsidiaries, while lower regulatory restrictions on banking activities are associated with a stronger presence of foreign subsidiaries, but not of branches.

What drives cross-border M&As in commercial banking?

“…We would also expect banks to be attracted to rapidly growing countries. Following Focarelli and Pozzolo (2006) we entered the annual GDP growth in the target country, LOG GDP GROWTH . We computed the annual growth for target country j as:…”

Diversification and determinants of international credit portfolios: Evidence from German banks

“…However, empirical evidence has been mixed. Recent studies (eg, Focarelli and Pozzolo 2005, Berger et al 2003, Seth et al 1998, Williams 1998 tend to paint a more nuanced picture of the importance of the follow-your-client motive than earlier contributions (eg, Yamori 1998, Brealey andKaplanis 1996). 27 We do not include FDI by banks or other financial firms in that measure.…”

Стратегије Уласка Мултинационалних Банака На Нова Тржишта

“…приступ који би укључио и висину очекиваног профита (Tripe and Matthews 2000, 2;Focarelli andPozzolo 2005, 2437). У прилог овој тези говоре и резултати истраживања Хрватске народне банке из 2002. године.…”

“…Са друге стране, број иностраних мерџера и аквизиција у банкарској индустрији бележио је најбржи раст 1990-их. Ипак, удео банкарских мерџера и аквизиција још увек је мали посматрано по земљама и ређи je него у другим делатностима (Focarelli andPozzolo 2005, 2436).…”