International Banking and Liquidity Allocation: Cross-Border Financial Services Versus Multinational Banking

Posted: 30 Dec 2009 Last revised: 26 Sep 2010

See all articles by Diemo Dietrich

Diemo Dietrich

Newcastle University Business School

Uwe Vollmer

University of Leipzig

Date Written: September 9, 2009

Abstract

This paper explores the comparative advantage of multinational banking over cross-border financial services in terms of capitalizing on a global access to funding sources. We argue that this advantage depends on the benefit and the cost of multinational banks’ intimacy with local markets. The benefit is that it allows multinational banks to create more liquidity. The cost is that it causes inefficiencies in internal capital markets, on which a bank relies to allocate liquidity across countries. We analyze the conditions under which multinational banking is then likely to arise and show that capital requirements have an effect as they influence the degree of inefficiency in internal capital markets for alternative organization structures differently.

Keywords: Financial integration, International banking, Capital regulation, Foreign direct investment, Incomplete contracts

JEL Classification: G21, G28, F36, F23

Suggested Citation

Dietrich, Diemo and Vollmer, Uwe, International Banking and Liquidity Allocation: Cross-Border Financial Services Versus Multinational Banking (September 9, 2009). Journal of Financial Services Research, Vol. 37(1), pp. 45-69, Available at SSRN: https://ssrn.com/abstract=1529719

Diemo Dietrich (Contact Author)

Newcastle University Business School ( email )

5 Barrack Road
Newcastle-upon-Tyne NE1 7RU, NE1 4SE
United Kingdom

HOME PAGE: http://www.ncl.ac.uk/business-school/staff/profile/diemodietrich.html

Uwe Vollmer

University of Leipzig ( email )

Marschnerstrasse 31
D-04109 Leipzig, 04109
Germany

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