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What determines cross-border bank lending and risk-taking? The effects of culture, geography, institutions, and information exchange

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  • Owen, Ann L.
  • Temesvary, Judit

Abstract

We explore the effects of culture, regulation, and geographical factors on bilateral cross-border bank lending. Using a newly compiled dataset on BIS-reporting banks’ activities, we find that geographical factors, information flows and common institutional arrangements are the primary drivers of bilateral bank lending. Trust between individuals in the two countries matters only as a proxy for other cultural similarities. The relationship between bank regulatory differences and lending flows has changed over time. Before the crisis, banks made more cross-border loans in countries with regulations that promoted market discipline and transparency, but took on more risk in countries that had less transparency, perhaps in pursuit of higher returns. This relationship between transparency and banking flows has disappeared in the aftermath of the financial crisis.

Suggested Citation

  • Owen, Ann L. & Temesvary, Judit, 2014. "What determines cross-border bank lending and risk-taking? The effects of culture, geography, institutions, and information exchange," MPRA Paper 57692, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57692
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    File URL: https://mpra.ub.uni-muenchen.de/59162/1/MPRA_paper_59162.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    bank lending; international banking; bank regulations; gravity models; cross-country analysis;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F3 - International Economics - - International Finance

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