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Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
Banking Across Borders With Heterogeneous Banks
Friederike Niepmann
Abstract

This paper develops a model of banking across borders where banks differ in their efficiencies that can replicate key patterns in the data. More efficient banks are more likely to have assets, liabilities and affiliates abroad and have larger foreign operations. Banks are more likely to be active in countries that have less efficient domestic banks, are bigger and more open to foreign entry. In the model, banking sector integration leads to bank exit and entry and convergence in the return on loans and funding costs across countries. Bank heterogeneity matters for the associated welfare gains. Results suggest that differences in bank efficiencies across countries drive banking across borders, that fixed costs are crucial for foreign bank operations and that globalization makes larger banks even larger.


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Friederike Niepmann, Banking Across Borders With Heterogeneous Banks, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 1177, 19 Jul 2016.
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Keywords: Cross-border banking ; Heterogeneity ; Multinational banks ; Trade in services
DOI: 10.17016/IFDP.2016.1177
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