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Banking across borders with heterogeneous banks

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  • Niepmann, Friederike

Abstract

This paper develops a model of banking across borders where banks differ in their efficiencies. Operating abroad allows the most efficient banks that have a large enough scale to overcome the associated fixed costs to increase their leverage, size and profits even more. Banking globalization increases welfare because these banks, by maximizing the return on loans and minimizing funding costs, improve the allocation of capital by channeling capital across borders. At the same time, global banking sector efficiency increases because the least efficient banks exit. Foreign exposures data for German banks deliver new model-derived stylized facts. In particular, the average efficiency of banks that operate abroad is lower for host countries that have a less efficient banking sector, are larger and feature lower impediments to foreign bank entry.

Suggested Citation

  • Niepmann, Friederike, 2023. "Banking across borders with heterogeneous banks," Journal of International Economics, Elsevier, vol. 142(C).
    • Handle: RePEc:eee:inecon:v:142:y:2023:i:c:s002219962300034x
    DOI: 10.1016/j.jinteco.2023.103748
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    2. Jonas Becker & Maik Schmeling & Andreas Schrimpf, 2024. "Global Bank Lending and Exchange Rates," BIS Working Papers 1161, Bank for International Settlements.

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    More about this item

    Keywords

    Cross-border banking; Heterogeneity; Multinational banks; Trade in services;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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