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Banks’ Internationalization Strategies: The Role of Bank Capital Regulation

Diemo Dietrich and Uwe Vollmer

No 18/2006, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: This paper studies how capital requirements influence a bank’s mode of entry into foreign financial markets. We develop a model of an internationally operating bank that creates and allocates liquidity across countries and argue that the advantage of multinational banking over offering cross-border financial services depends on the benefit and the cost of intimacy with local markets. The benefit is that it allows to create more liquidity. The cost is that it causes inefficiencies in internal capital markets, on which a multinational bank relies to allocate liquidity across countries. Capital requirements affect this trade-off by influencing the degree of inefficiency in internal capital markets.

Keywords: unvollständige Finanzverträge; grenzüberschreitende Finanzdienstleistungen; Auslandsdirektinvestitionen im Bankensektor; Liquiditätsallokation; incomplete financial contracting; cross-border financial services; multinational banking; liquidity allocation; capital regulation (search for similar items in EconPapers)
JEL-codes: G21 F21 F23 (search for similar items in EconPapers)
Date: 2006
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Journal Article: International Banking and Liquidity Allocation (2010) Downloads
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