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Changing Forces of Gravity: How the Crisis Affected International Banking

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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File URL: http://www.iaw.edu/RePEc/iaw/pdf/iaw_dp_100.pdf
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Paper provided by Institut für Angewandte Wirtschaftsforschung (IAW) in its series IAW Discussion Papers with number 100.

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Length: 40 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:iaw:iawdip:100
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  1. Philippe Martin & H=E9l=E8ne Rey=, 2001. "Financial Super-Markets: Size Matters for Asset Trade," International Finance 0012001, EconWPA.
  2. Claessens, Stijn & Van Horen, Neeltje, 2007. "Location decisions of foreign banks and competitive advantage," Policy Research Working Paper Series 4113, The World Bank.
  3. Richard Baldwin & Daria Taglioni, 2006. "Gravity for Dummies and Dummies for Gravity Equations," NBER Working Papers 12516, National Bureau of Economic Research, Inc.
  4. Aviat, Antonin & Coeurdacier, Nicolas, 2007. "The geography of trade in goods and asset holdings," Journal of International Economics, Elsevier, vol. 71(1), pages 22-51, March.
  5. Niepmann, Friederike, 2013. "Banking across borders," Discussion Papers 19/2013, Deutsche Bundesbank, Research Centre.
  6. Ralph de Haas & Neeltje van Horen, 2011. "Running for the Exit: International Banks and Crisis Transmission," DNB Working Papers 279, Netherlands Central Bank, Research Department.
  7. Neeltje van Horen & Stijn Claessens, 2012. "Foreign Banks; Trends, Impact and Financial Stability," IMF Working Papers 12/10, International Monetary Fund.
  8. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  9. Nicola Cetorelli & Linda S. Goldberg, 2010. "Global banks and international shock transmission: evidence from the crisis," Staff Reports 446, Federal Reserve Bank of New York.
  10. Andrew K. Rose & Tomasz Wieladek, 2011. "Financial Protectionism: the First Tests," NBER Working Papers 17073, National Bureau of Economic Research, Inc.
  11. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, vol. 87(2), pages 205-215.
  12. 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.
  13. 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.
  14. Doireann Fitzgerald, 2012. "Trade Costs, Asset Market Frictions, and Risk Sharing," American Economic Review, American Economic Association, vol. 102(6), pages 2700-2733, October.
  15. 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.
  16. Paul R. Bergin & Ju Hyun Pyun, 2012. "International Portfolio Diversification and Multilateral Effects of Correlations," NBER Working Papers 17907, National Bureau of Economic Research, Inc.
  17. Focarelli, Dario & Pozzolo, Alberto Franco, 2003. "Where Do Banks Expand Abroad? An Empirical Analysis," Economics & Statistics Discussion Papers esdp03009, University of Molise, Dept. EGSeI.
  18. Giannetti, Mariassunta & Laeven, Luc, 2012. "The flight home effect: Evidence from the syndicated loan market during financial crises," Journal of Financial Economics, Elsevier, vol. 104(1), pages 23-43.
  19. Buch, Claudia M. & Lipponer, Alexander, 2007. "FDI versus exports: Evidence from German banks," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 805-826, March.
  20. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
  21. repec:cas:wpaper:cas_rn_2007_7 is not listed on IDEAS
  22. Michael B. Devereux & Alan Sutherland, 2008. "Country Portfolios in Open Economy Macro Models," NBER Working Papers 14372, National Bureau of Economic Research, Inc.
  23. Berger, Allen N. & Buch, Claudia M. & DeLong, Gayle & DeYoung, Robert, 2004. "Exporting financial institutions management via foreign direct investment mergers and acquisitions," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 333-366, April.
  24. Buch, Claudia M, 2003. " Information or Regulation: What Drives the International Activities of Commercial Banks?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 851-69, December.
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