Determinants of International Banking: Evidence from the World's Largest Banks

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Banks have expanded their foreign activities due to deregulation and advances in technology. Using a new approach, we measure the level of internationalization of the world's largest commercial banks. The degree of internationalization is found to be uneven across the three main continents. Previous research has mainly focused on host country or bank-specific factors to explain international banking. This paper investigates which home-country factors explain the level of internationalization. The size of the country and the concentration of the banking system appear to be significant variables. In addition, trade or economic integration is an important driver of internationalization (for the EU, but not for NAFTA). Interestingly, economic integration does not only stimulate cross-border banking within the region, but also global banking beyond the region.