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The Ideal Loan and the Patterns of Cross-Border Bank Lending

Author

Listed:
  • Joern Kleinert

    ( Karl-Franzens University of Graz)

  • Bettina Brueggemann

    (University of Frankfurt)

  • Esteban Prieto

    (University of Tuebingen)

Abstract

A typical loan offer is a differentiated product with various negotiated characteristics (maturity, amount, timing, collateral, disclosure requirements) which involve costs that go beyond the mere interest rate. Taking into account all costs, a firm chooses the cost minimizing loan offer. Based on this decision criterion, we derive the probability of a firm from country i to choose a loan contract from a bank in country j. We use this probability to derive a gravity equation for cross-border bank loans. Finally, we estimate the gravity equation based on the theoretical model controlling for the unobserved heterogeneity proposed by our theoretical model.

Suggested Citation

  • Joern Kleinert & Bettina Brueggemann & Esteban Prieto, 2012. "The Ideal Loan and the Patterns of Cross-Border Bank Lending," Graz Economics Papers 2012-03, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2012-03
    as

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    References listed on IDEAS

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    Cited by:

    1. Mehigan, Caroline, 2018. "Bilateral adjustment of bank assets: Boom and bust," Emerging Markets Review, Elsevier, vol. 36(C), pages 144-158.
    2. Müting, Miriam, 2020. "Multinational lending retrenchment after the global financial crisis: The impact of policy interventions," Discussion Papers in Economics 72612, University of Munich, Department of Economics.
    3. Brei, Michael & von Peter, Goetz, 2018. "The distance effect in banking and trade," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 116-137.
    4. Mercado, Rogelio V., 2023. "Bilateral capital flows: Transaction patterns and gravity," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 39-54.
    5. Tien Nguyen & Dung Phuong Hoang & Thang Ngoc Doan, 2022. "On the uncertainty-global bank linkage nexus: The moderation of crises, financial regulations, and institutional quality," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(4), pages 623-645, October.
    6. Bremus, Franziska M., 2015. "Cross-border banking, bank market structures and market power: Theory and cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 242-259.
    7. Norring, Anni, 2019. "Macroprudential policy spillovers and international banking - Taking the gravity approach," ESRB Working Paper Series 101, European Systemic Risk Board.
    8. Bremus, Franziska & Fratzscher, Marcel, 2015. "Drivers of structural change in cross-border banking since the global financial crisis," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 32-59.

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    More about this item

    Keywords

    Product differentiation; Gravity Equation; Cross-border bank lending;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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