Are Banks Different? Evidence from International Data

International capital flows have become increasingly disintermediated, and this trend is particularly pronounced for developed countries. This paper briefly summarizes the theoretical literature on the choice between bank debt and bond finance and argues that the trend towards disintermediation of financial services can be explained with declining information costs. Two new datasets on bilateral cross‐border bank claims and bond holdings are used to test the implications of the model. I find that the state of development of an economy, as an indirect measure of information costs, lowers the share of bank finance. The geographical distance between a lender and a borrower has a negative impact on the share of bank finance.