Integrating with Their Feet: Cross-Border Lending at the German-Austrian Border

Jarko Fidrmuc () and Christa Hainz

No 248, Discussion Papers from SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: The current economic policy discussion on financial integration in the European Union concentrates on cross-border mergers. We study the impact of cross-border lending in a theoretical model where banks acquire either hard or soft information on borrowing firms and predict that the closer firms are to the border the more likely banks are to offer them cross-border loans. This hypothesis is confirmed in the ifo Business Climate Survey that reports the perceptions of German firms on banks’ lending behavior between 2003 and 2006. In contrast to the policy of harmonization, differences in bank regulations may provide incentives for cross-border lending. Thus, we show that financial integration may take place from the bottom up.

Keywords: Financial Integration; SMEs; Banking Supervision; Business Surveys; Threshold Analysis (search for similar items in EconPapers)
JEL-codes: G18 G21 C25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban
Date: 2008-08

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Working Paper: Integrating with their Feet: Cross-Border Lending at the German-Austrian Border (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:trf:wpaper:248

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