Size, productivity, and international banking

Abstract

Heterogeneity in size and productivity is central to models that explain which manufacturing firms export. This study presents descriptive evidence on similar heterogeneity among international banks as financial services providers. A novel and detailed bank-level data set reveals the volume and mode of international activities for all German banks. Only a few, large banks have a commercial presence abroad, consistent with the size pecking order documented for manufacturing firms. However, the relationship between internationalization and productivity also yields two inconsistencies with recent trade models. First, virtually all banks hold at least some foreign assets, irrespective of size or productivity. Second, some fairly unproductive banks maintain commercial presences abroad. Heterogeneity in size and productivity is central to models that explain which manufacturing firms export. This study presents descriptive evidence on similar heterogeneity among international banks as financial services providers. A novel and detailed bank-level data set reveals the volume and mode of international activities for all German banks. Only a few, large banks have a commercial presence abroad, consistent with the size pecking order documented for manufacturing firms. However, the relationship between internationalization and productivity also yields two inconsistencies with recent trade models. First, virtually all banks hold at least some foreign assets, irrespective of size or productivity. Second, some fairly unproductive banks maintain commercial presences abroad.© 2011 Elsevier B.V. All rights reserved. MotivationTo present descriptive evidence on the relationship between size, productivity, and the internationalization patterns of banks, we use a novel micro data set: the External Position Report (Auslandsstatus) provided by the German central bank, the Deutsche Bundesbank. Using data that cover all 2226 German banks' international exposures in 63 countries during the years 2002-2006, we explore a potentially important new data source for research in international trade in financial services. We ask if observed internationalization patterns of banks are consistent with the evidence previously presented for manufacturing firms.In manufacturing, larger and more productive firms are more likely to export and engage in foreign direct investment (FDI) than are smaller and less productive firms (Eaton et al., 2004;Helpman et al., 2004;Bernard et al., 2007;Lileeva and Trefler, 2010), due to the interaction between firm-level productivity and the costs of market entry (Melitz, 2003;Helpman et al., 2008): domestic fixed costs are lower than the fixed costs of exporting, which are lower than the fixed costs of FDI.1 Firms self-select into different modes of entry, because the higher fixed costs of more complex foreign activity modes require higher productivity, which results in a "pecking order of productivity". We distinguish the cross-border provision of financial services and commercial presences (branches or subs...

Cross-border transmission of emergency liquidity

“…These 139 banks on German soil with access to the U.S. liquidity facilities belong to 22 non-U.S. IBHCs, of which all operated their branches or subsidiaries already in 2004, the commencement year of the formal interest rate statistics, up and until today with one exception. 8 This persistent internationalization pattern in terms of foreign affiliates is consistent with the results reported by Buch, Koch, and Koetter (2011a) and suggests a systematic self-selection of (large) banks in to the U.S. market in anticipation of future emergency liquidity provision to be unlikely. Nonetheless, we also consider various alternative access definitions, which are indicated in the bottom portion of Figure 5, and for which we report results in the Online Appendix.…”

Regional Bank Efficiency and its Effect on Regional Growth in "Normal" and "Bad" Times

“…The overall inflow and outflow restrictions indexes are taken from Fernandez et al (2015) and they assess countries' capital control restrictions. Capital controls do affect all internationally active economic entities but in particular banks which, even if small (Buch et al, 2011), hold foreign assets. That these regulations actually are affecting banks' behavior can be seen in the evolution of average held equity, z, which increased during the complete time period of our sample and particularly in the years after the financial crisis.…”

Financial Globalization and Foreign Direct Investment

“…Several papers and datasets shed light on the international activities of banks. For example, Buch et al (2011) report that out of all 2,226 German banks, observed between 2002 and 2006, only 11% lend in 4 The banking union is a transfer of responsibility for banking policy from the national to the EU level. This is meant to prevent policy competition between national supervisory authorities in times of crisis.…”