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Why Do Banks Go Abroad? � Evidence from German Data

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  • Claudia M. Buch

Abstract

This paper provides empirical evidence on the determinants of foreign activities of German banks. We use regionally disaggregated panel data for the years 1981–98 and distinguish foreign direct investment from total foreign assets of domestic banks, of their foreign branches and their subsidiaries. Foreign activities are found to be positively related to demand conditions on the local market, foreign activities of German firms, and the presence of financial centers. This supports the hypothesis that German banks follow their customers abroad. Exchange rate volatility has some negative impact. EU membership and the abolition of capital controls seem to have exerted a greater influence on foreign assets than on FDI of German banks, thus weakly supporting the hypothesis that the two are substitutes.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 948.

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Length: 38 pages
Date of creation: Sep 1999
Date of revision:
Handle: RePEc:kie:kieliw:948

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Keywords: foreign activities of commercial banks; Germany; panel cointegration;

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References

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  1. DeYoung, Robert & Nolle, Daniel E, 1996. "Foreign-Owned Banks in the United States: Earning Market Share or Buying It?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 28(4), pages 622-36, November.
  2. Brealey, R. A. & Kaplanis, E. C., 1996. "The determination of foreign banking location," Journal of International Money and Finance, Elsevier, Elsevier, vol. 15(4), pages 577-597, August.
  3. Chen, Andrew H. & Mazumdar, Sumon C., 1997. "A dynamic model of firewalls and non-traditional banking," Journal of Banking & Finance, Elsevier, Elsevier, vol. 21(3), pages 393-416, March.
  4. Hultman, Charles W. & Randolph McGee, L., 1989. "Factors affecting the foreign banking presence in the U.S," Journal of Banking & Finance, Elsevier, Elsevier, vol. 13(3), pages 383-396, July.
  5. Moshirian, Fariborz & Van der Laan, Alex, 1998. "Trade in financial services and the determinants of banks' foreign assets," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 8(1), pages 23-38, January.
  6. Daniel E. Nolle & Rama Seth, 1996. "Do banks follow their customers abroad?," Research Paper, Federal Reserve Bank of New York 9620, Federal Reserve Bank of New York.
  7. Hart, Oliver D & Jaffee, Dwight M, 1974. "On the Application of Portfolio Theory to Depository Financial Intermediaries," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 41(1), pages 129-47, January.
  8. Goldberg, Lawrence G. & Grosse, Robert, 1994. "Location choice of foreign banks in the United States," Journal of Economics and Business, Elsevier, Elsevier, vol. 46(5), pages 367-379, December.
  9. Vennet, Rudi Vander, 1996. "The effect of mergers and acquisitions on the efficiency and profitability of EC credit institutions," Journal of Banking & Finance, Elsevier, Elsevier, vol. 20(9), pages 1531-1558, November.
  10. Yamori, Nobuyoshi, 1998. "A note on the location choice of multinational banks: The case of Japanese financial institutions," Journal of Banking & Finance, Elsevier, Elsevier, vol. 22(1), pages 109-120, January.
  11. Goldberg, Lawrence G. & Saunders, Anthony, 1981. "The determinants of foreign banking activity in the United States," Journal of Banking & Finance, Elsevier, Elsevier, vol. 5(1), pages 17-32, March.
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