Do Banks Follow Their Customers Abroad?

Rama Seth, Daniel E. Nolle and Sunil K. Mohanty

Financial Markets, Institutions & Instruments, 1998, vol. 7, issue 4, 1-25

Abstract: The market share of US business loans made by foreign‐owned banks has increased dramatically since 1980. At the same time, foreign direct investment in the US rose, so that much of the growth in foreign‐owned US‐based bank lending to businesses in the US could conceivably be accounted for by an increase in loans to the nonbank US affiliates of firms headquartered abroad, an expectation consistent with the conventional wisdom that banks “follow their customers” abroad. Our study investigates the lending patterns of US‐based banks from Japan, Canada, France, Germany, the Netherlands, and the UK, countries that account for the vast majority of foreign bank activity in the US. Simultaneously, we look at the borrowing patterns of nonbank US affiliates of firms from those countries. We find that banks from four of the six countries (Japan, Canada, the Netherlands, and the UK) allocated a majority of their loans to non‐home‐country borrowers for some or all of the 1981–1992 period. These findings suggest that the “follow the customer” hypothesis may have a more limited applicability than previously supposed.

Date: 1998
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https://doi.org/10.1111/1468-0416.00021

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Persistent link: https://EconPapers.repec.org/RePEc:wly:finmar:v:7:y:1998:i:4:p:1-25

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