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

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  • Jarko Fidrmuc
  • Christa Hainz

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Abstract

The financial integration in Europe concentrates on cross-border mergers rather than cross-border lending and emphasizes the need for harmonizing bank regulation and supervision. We study the impact of cross-border lending in a theoretical model where banks acquire either hard or soft information of borrowing firms. We test the model’s predictions using the ifo business climate survey that reports the perceptions of German firms’ credit availability between 2003 and 2006. Our results show that distance matters for cross-border lending, especially for the SMEs. In contrast to the policy of harmonization, differences in bank regulations may have speeded up the cross-border lending.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-04/cesifo1_wp2279.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2279.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2279

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Keywords: financial integration; SMEs; banking supervision; business surveys; threshold analysis;

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References

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  1. Emilia Bonaccorsi Di Patti & Giorgio Gobbi, 2007. "Winners or Losers? The Effects of Banking Consolidation on Corporate Borrowers," Journal of Finance, American Finance Association, vol. 62(2), pages 669-695, 04.
  2. Hans Degryse & Steven Ongena, 2005. "Distance, Lending Relationships, and Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 231-266, 02.
  3. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1998. "The Effects of Bank Mergers and Acquisitions on Small Business Lending," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-007, New York University, Leonard N. Stern School of Business-.
  4. Sumit Agarwal & Robert B. H. Hauswald, 2007. "Distance and information asymmetries in lending decisions," Proceedings 1052, Federal Reserve Bank of Chicago.
  5. André Kunkel, 2007. "Freundlicher Kreditmarkt für das verarbeitende Gewerbe," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 60(07), pages 29-31, 04.
  6. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  7. Pietro Alessandrini & Andrea F. Presbitero & Alberto Zazzaro, 2009. "Banks, Distances and Firms' Financing Constraints," Review of Finance, European Finance Association, vol. 13(2), pages 261-307.
  8. Scott, Jonathan A & Dunkelberg, William C, 2003. " Bank Mergers and Small Firm Financing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 999-1017, December.
  9. Mitchell A. Petersen & Raghuram G. Rajan, 2002. "Does Distance Still Matter? The Information Revolution in Small Business Lending," Journal of Finance, American Finance Association, vol. 57(6), pages 2533-2570, December.
  10. repec:sae:ecolab:v:16:y:2006:i:2:p:1-2 is not listed on IDEAS
  11. International Monetary Fund, 2004. "Germany's Three-Pillar Banking System," IMF Occasional Papers 233, International Monetary Fund.
  12. Johannes Jäger & Vanessa Redak, 2006. "Austrian Banks’ Lending and Loan Pricing Strategies against the Background of Basel II," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 12, pages 92-103.
  13. DeYoung, Robert & Frame, W. Scott & Glennon, Dennis & McMillen, Daniel P. & Nigro, Peter, 2008. "Commercial lending distance and historically underserved areas," Journal of Economics and Business, Elsevier, vol. 60(1-2), pages 149-164.
  14. Lieven Baele, 2004. "Measuring European Financial Integration," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 509-530, Winter.
  15. Huang, Rocco R., 2008. "Evaluating the real effect of bank branching deregulation: Comparing contiguous counties across US state borders," Journal of Financial Economics, Elsevier, vol. 87(3), pages 678-705, March.
  16. Susanne Prantl & Matthias Almus & Jürgen Egeln & Dirk Engel, 2006. "Bank Intermediation and Small Business Lending," CIG Working Papers SP II 2006-21, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  17. Robert Hauswald & Robert Marquez, 2006. "Competition and Strategic Information Acquisition in Credit Markets," Review of Financial Studies, Society for Financial Studies, vol. 19(3), pages 967-1000.
  18. Paola Sapienza, 2002. "The Effects of Banking Mergers on Loan Contracts," Journal of Finance, American Finance Association, vol. 57(1), pages 329-367, 02.
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Cited by:
  1. Gropp, Reint Eberhard & Kashyap, Anil K., 2008. "A New Metric for Banking Integration in Europe," ZEW Discussion Papers 08-102, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Jarko Fidrmuc & Christa Hainz, 2008. "Grenzüberschreitende Kreditvergabe: Das Beispiel von Deutschland und Österreich," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 61(23), pages 25-29, December.
  3. Anselm Mattes & Julia Spies, 2009. "Außenwirtschaftliche Verbindungen der deutschen Bundesländer zur Republik Österreich," IAW Discussion Papers 49, Institut für Angewandte Wirtschaftsforschung (IAW).
  4. Michael Boss & Martin Fenz & Johannes Pann & Claus Puhr & Martin Schneider & Eva Ubl, 2009. "Modeling Credit Risk through the Austrian Business Cycle: An Update of the OeNB Model," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 17, pages 85-101.

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