International capital flows in banking have increased over recent decades. The internationalization of banking has thereby been driven by the globalization of economic activity as well as by the deregulation of financial markets. Banks have various possibilities in order to expand their operations into foreign markets: For example, they can operate through their domestic offices (through direct cross-border lending and borrowing). Alternatively, they can set up an affiliate abroad (through FDI). On the one hand, the internationalization allows for risk-sharing possibilities and enables an improvement of the allocation of capital. On the other hand, cross-country linkages can transmit shocks from one banking system to the other. This has become obvious during the recent crisis and fuelled debates about regulatory measures. Yet appropriate regulatory actions require an understanding of the driving forces behind these capital flows. Research on the determinants of cross-border bank activities reveals that geographical or cultural distance, differences in the legal system, arbitrage possibilities or entry barriers affect banks’ international investment decisions. Moreover, growth differentials and interest rate differences may influence cross-border banking.
Published papers
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Caballero, R. J., and Simsek, A. (2018). Reach for Yield and Fickle Capital Flows. AEA Papers and Proceedings 108: 493-498.
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Kalemli-Ozcan, S., E. Papaioannou, and J.-L. Peydró (2013). Financial regulation, financial globalization, and the synchronization of economic activity. The Journal of Finance 68(3): 1179-1228.
Kleinmeier, S., S. Heuchemer, and H. Sander (2013). Financial crises and cross-border banking: New evidence. Journal of International Money and Finance 32: 844-915.
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Obstfeld, M. (2020). Globalization Cycles. Italian Economic Journal 6: 1-12.
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Working and discussion papers
Aiyar, S., & Patnam, M. (2021). IMF Programs and Financial Flows to Offshore Centers. IMF Working Paper No. 2021/146
Aizenman, J., Y-W. Cheung, X. Qian (2019). The Currency Composition of International Reserves, Demand for International Reserves, and Global Safe Assets. NBER Working Paper No. 25934.
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Alfaro, L., E. Faia, R. Judson, and T. Schmidt-Eisenlohr (2020). Elusive Safety: The New Geography of Capital Flows and Risk. CEPR Discussion Paper No. 14636.
Amiti, M., P. McGuire, and D. Weinstein (2017). Supply- and Demand-Dide Factors in Global Banking. BIS Working Papers No 639
Avdjiev, S., L. Gambacorta, L. S. Goldberg, and S. Schiaffi (2017). The Shifting Drivers of Global Liquidity. NBER Working Paper No. 23565.
Avdjiev, S., B. Hardy, S. Kalemli-Ozcan, and L. Servén (2018). Gross capital flows by banks, corporates and sovereigns. BIS Working Paper No. 760.
Avdjiev, S., Z. Kuti, and E. Takats (2012). The Euro area crisis and cross-border bank lending to emerging markets. BIS Quarterly Review December 2012. Available at SSRN: http://ssrn.com/abstract=2206339.
Benetrix, A., R. McCauly, P. McGuire, and G. von Peter (2017). Financial deglobalisation in banking? BIS Working Papers No 650.
Bergant, K., Milesi-Ferretti, G. M., Schmitz, M. (2023). Cross-Border Investment in Emerging Market Bonds: Stylized Facts and Security-Level Evidence from Europe. CEPR Discussion Paper No. 17946
Bolton, P., and M. Oehmke (2018). Bank Resolution and the Structure of Global Banks. CEPR Discussion Paper DP13032.
Bordo, M. D. (2017). The Second Era of Globalization is Not Yet Over: An Historical Perspective. NBER Working Paper No. 23786.
Bouvatier, V., G. Capelle-blancard, and A.-L. Delatte (2018). Banks Defy Gravity in Tax Havens. CEPR Discussion paper No. 12222.
Burger, J. D., F. E. Warnock, V. Cacdac Warnock (2019). The Natural Level of Capital Flows. NBER Working Paper No. 26184.
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Cerutti, E., S. Claessens, and L. Ratnovski (2014). Global liquidity and drivers of cross-border bank flows. London Centre for Economic Policy Research.
Committee on the Global Financial System (2018). Structural changes in banking after the crisis. CGFS Papers No. 60.
Converse, N., Levy-Yeyati, E., and Williams, T. (2018). How ETFs amplify the global financial cycle in emerging markets. Institute for International Economic Policy Working Paper, 1.
Coppola, A., M. Maggiori, B. Neiman, and J. Schreger (2020). Redrawing the Map of Global Capital Flows: The Role of Cross-Border Financing and Tax Havens. NBER Working Paper No. 26855.
Deloof, M., and F. Montalto (2017). The Flight Home Effect in Multinational Internal Capital Markets During the Great Recession. SSRN Working Paper id 2976257.
Demirguc-Kunt, A., B. L. Horvath, and H. Huizinga (2023). Regulatory Arbitrage and Loan Location Decisions by Multinational Banks. Center for Global Development Working Paper 639.
Duijm, P., and D. Schoenmaker (2017). European Banks Straddling Borders: Risky or Rewarding? CEPR Discussion Paper 12159.
Ehlers, T., and P. Wooldridge (2015). Channels and determinants of foreign bank lending. BIS Papers No 82.
Eichengreen, B., and R. Esteves (2019). The Trials of the Trilemma: International Finance 1870-2017. CEPR Discussion Paper No. DP13465.
Everett, M., and V. Galstyan (2017). Cross-Border Banking and Macroeconomic Determinants. TED Working Paper No. 0317.
Faia, E., G. Ottaviano, and I. S. Arjona (2017). International Expansion and Riskiness of Banks. CEPR Working Paper 11951.
Gambacorta, L., S. Mayordomo, and J-M. Serena Garralda (2020). Dollar Borrowing, Firm-Characteristics, and FX-Hedged Funding Opportunities. CEPR Discussion Paper No. DP14419.
Gambacorta L., A. v. Rixtel, and S. Schiaffi (2017). Changing business models in international bank funding. CEPR Discussion Paper 11957.
Goldberg, L. S., S. Krogstrup (2018). International Capital Flow Pressures. IMF Working Paper No.18/30.
Goldberg, L. S., S. Krogstrup (2023). International Capital Flow Pressures and Global Factors. NBER Working Paper 30887.
Graf von Luckner , C., Reinhart, C., and Rogoff, K. ( 2023). Decrypting New Age International Capital Flows. CEPR Discussion Paper DP17859.
Hardy, B. (2018). Foreign currency borrowing, balance sheet shocks and real outcomes. BIS Working Papers No. 758.
Hashimoto, Y., S. Krogstrup (2019). Capital Flows: The Role of Bank and Nonbank Balance Sheets. IMF Working Paper. No. WP/19/85.
Impavido G., H. Rudolph, and L. Ruggerone (2013). Bank funding in Central, Eastern and South Eastern Europe Post Lehman: A “New Normal”? IMF Working Paper 13/148.
Jeanneau, S., and M. Micu (2002). Determinants of international bank lending to emerging market countries. BIS Working Paper 112.
Kaminsky, G. L. (2017). The Center and the Periphery: Two Hundred Years of International Borrowing Cycles. NBER Working Paper No. 23975.
Lee, J.-W. (2008). Patterns and determinants of cross-border financial asset holdings in East Asia. Asian Development Bank Working Papers on Regional Economic Integration 13.
Maggiori, M., B. Neiman, and J. Schreger (2018). International Currencies and Capital Allocation. NBER Working Paper No. 24673.
Massa, M., and S. David (2015). Subcontracting in international asset management: New evidence on market integration. CEPR Discussion Papers DP10465.
Niepmann, F. (2013). Banking across borders with heterogeneous banks. Federal Reserve Bank of New York Staff Reports 609.
Pagliari, M. S., and S. A. Hannan (2017). The Volatility of Capital Flows in Emerging Markets: Measures and Determinants. IMF Working Paper No. 17/41.
Wei, S. J. (2018). Managing Financial Globalization: Insights from the Recent Literature. NBER Working Paper No. 24330.
Other articles
Brüggemann, B., J. Kleinert, and E. Prieto (2012). A gravity equation for bank loans. Mimeo.
Mueller, O., and A. Uhde (2013). Financial crises and volatility of cross-border bank lending: Two sides of the same coin? Mimeo.