Do banks follow their customers abroad?

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.