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Changing forces of gravity: How the crisis affected international banking

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  • Buch, Claudia M.
  • Neugebauer, Katja
  • Schröder, Christoph

Abstract

The global financial crisis has brought to an end a rather unprecedented period of banks' international expansion. We analyze the effects of the crisis on international banking. Using a detailed dataset on the international assets of all German banks with foreign affiliates for the years 2002-2011, we study bank internationalization before and during the crisis. Our data allow analyzing not only the international assets of the banks' headquarters but also of their foreign affiliates. We show that banks have lowered their international assets, both along the extensive and the intensive margin. This withdrawal from foreign markets is the result of changing market conditions, of policy interventions, and of a weakly increasing sensitivity of banks to financial frictions. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 14-006.

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Date of creation: 2014
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Handle: RePEc:zbw:zewdip:14006

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Keywords: international banking; gravity model; financial frictions;

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  1. Giannetti, Mariassunta & Laeven, Luc, 2011. "The Flight Home Effect: Evidence from the Syndicated Loan Market During Financial Crises," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8337, C.E.P.R. Discussion Papers.
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  7. Doireann Fitzgerald, 2012. "Trade Costs, Asset Market Frictions, and Risk Sharing," American Economic Review, American Economic Association, American Economic Association, vol. 102(6), pages 2700-2733, October.
  8. Nicola Cetorelli & Linda S Goldberg, 2011. "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review, Palgrave Macmillan, Palgrave Macmillan, vol. 59(1), pages 41-76, April.
  9. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, American Economic Association, vol. 93(1), pages 170-192, March.
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  12. Ralph De Haas & Neeltje Van Horen, 2013. "Running for the Exit? International Bank Lending During a Financial Crisis," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 26(1), pages 244-285.
  13. Cerutti, Eugenio & Dell'Ariccia, Giovanni & Martinez Peria, Maria Soledad, 2005. "How banks go abroad : branches or subsidiaries ?," Policy Research Working Paper Series 3753, The World Bank.
  14. Buch, Claudia M, 2003. " Information or Regulation: What Drives the International Activities of Commercial Banks?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 35(6), pages 851-69, December.
  15. Doireann Fitzgerald, 2007. "Trade Costs, Asset Market Frictions and Risk Sharing: A Joint Test," Working Papers, Laboratory for Macroeconomic Analysis CAS_RN_2007_7, Laboratory for Macroeconomic Analysis.
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  19. Buch, Claudia M. & Koch, Cathérine Tahmee & Koetter, Michael, 2011. "Crises, rescues, and policy transmission through international banks," Discussion Paper Series 1: Economic Studies 2011,15, Deutsche Bundesbank, Research Centre.
  20. Buch, Claudia M. & Koch, Cathérine Tahmee & Koetter, Michael, 2010. "Do banks benefit from internationalization? Revisiting the market power-risk nexus," Discussion Paper Series 2: Banking and Financial Studies 2010,09, Deutsche Bundesbank, Research Centre.
  21. Paul R. Bergin & Ju Hyun Pyun, 2012. "Multilateral Resistance to International Portfolio Diversification," NBER Working Papers 17907, National Bureau of Economic Research, Inc.
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  23. Michael B. Devereux & Alan Sutherland, 2008. "Country portfolios in open economy macro models," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 09, Federal Reserve Bank of Dallas.
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