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Do banks follow their customers abroad?

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Author Info

  • Daniel E. Nolle
  • Rama Seth

Abstract

The market share of U.S. business loans made by foreign-owned banks has increased dramatically since 1980. At the same time, foreign direct investment in the U.S. rose, so that much of the increase in foreign-owned U.S.-based bank lending to businesses in the U.S. could conceivably be accounted for by an increase in loans to the U.S. affiliates of firms headquartered abroad, an expectation in line with the conventional wisdom that bans "follow their customers" abroad. Our study investigates the lending patterns of U.S.-based banks from Japan, Canada, France, Germany, the Netherlands, and the U.K., countries which account for the vast majority of foreign-owned bank activity in the U.S. Simultaneously, we look at the borrowing patterns of U.S. nonbank affiliates of firms from those countries. We find that banks from four of the six countries (Japan, Canada, the Netherlands, and the U.K.) allocated a majority of their loans to non-home country borrowers, for some or all of the 1981-92 period. That result suggests that the "follow the customer" hypothesis may have a more limited applicability than previously supposed.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9620.

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Date of creation: 1996
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Handle: RePEc:fip:fednrp:9620

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Keywords: Banking market ; Banks and banking ; Banks and banking; Foreign;

References

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  1. Goldberg, Lawrence G & Saunders, Anthony, 1980. "The Causes of U.S. Bank Expansion Overseas: The Case of Great Britain," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 630-43, November.
  2. Sun Bae Kim, 1992. "Agency costs and the firm's ownership structure: the Japanese evidence," Proceedings 380, Federal Reserve Bank of Chicago.
  3. Sun Bae Kim & Ramon Moreno, 1994. "Stock prices and bank lending behavior in Japan," Economic Review, Federal Reserve Bank of San Francisco, pages 31-42.
  4. Grosse, Robert & Goldberg, Lawrence G., 1991. "Foreign bank activity in the United States: An analysis by country of origin," Journal of Banking & Finance, Elsevier, vol. 15(6), pages 1093-1112, December.
  5. R. Barrell & R. Anderton & G.M. Caporale & J.W. in't Veld, 1993. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 145(1), pages 43-63, August.
  6. Gray, Jean M. & Gray, H. Peter, 1981. "The multinational bank: A financial MNC?," Journal of Banking & Finance, Elsevier, vol. 5(1), pages 33-63, March.
  7. George Budzeika, 1991. "Determinants of the growth of foreign banking assets in the United States," Research Paper 9112, Federal Reserve Bank of New York.
  8. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
  9. Gary C. Zimmerman, 1989. "The growing presence of Japanese banks in California," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 3-17.
  10. Flath, David, 1993. "Shareholding in the Keiretsu, Japan's Financial Groups," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 249-57, May.
  11. Goldberg, Lawrence G. & Saunders, Anthony, 1981. "The determinants of foreign banking activity in the United States," Journal of Banking & Finance, Elsevier, vol. 5(1), pages 17-32, March.
  12. Hultman, Charles W. & Randolph McGee, L., 1989. "Factors affecting the foreign banking presence in the U.S," Journal of Banking & Finance, Elsevier, vol. 13(3), pages 383-396, July.
  13. Chan Huh & Sun Bae Kim, 1994. "How bad is the "bad loan problem" in Japan?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep23.
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