Banking across borders with heterogeneous banks

Friederike Niepmann

No 609, Staff Reports from Federal Reserve Bank of New York

Abstract: Individual banks differ substantially in their foreign operations. This paper introduces heterogeneous banks into a general equilibrium framework of banking across borders to explain the documented variation. While the model matches existing micro and macro evidence, novel and unexplored predictions of the theory are also strongly supported by the data: The efficiency of the least efficient bank active in a host country increases the greater the impediments to banking across borders and the efficiency of the banking sector in the host country. There is also evidence of a tradeoff between proximity and fixed costs in banking. Banks hold more assets and liabilities in foreign affiliates relative to cross-border positions if the target country is further away and the cost of foreign direct investment is low. These results suggest that fixed costs play a crucial role in the foreign activities of banks.

Keywords: heterogeneity; cross-border banking; multinational banks; foreign direct investment; trade in services (search for similar items in EconPapers)
JEL-codes: F12 F21 F23 G21 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2013-04-01
New Economics Papers: this item is included in nep-ban and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Banking across borders with heterogeneous banks (2023)
Working Paper: Banking Across Borders With Heterogeneous Banks (2018)
Working Paper: Banking Across Borders With Heterogeneous Banks (2016)
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