Distance and International Banking

TLDR

The technological revolution has lowered information costs, so if costs rise with distance, distance should become less important for international bank lending. Using a 1983‑1998 dataset of assets and liabilities from commercial banks in France, Germany, Italy, the UK, and the US operating in up to 50 host countries, the authors test this hypothesis. European banks continue to treat distance as a key determinant of lending, while U.S.

Abstract

If the technological revolution which has taken place over the past decades has lowered information costs and if information costs increase in distance, distance should - ceteris paribus - become less important in determining international bank lending. We are using a dataset on assets and liabilities of commercial banks from five countries (France, Germany, Italy, UK, US) in up to 50 host countries for the years 1983 through 1998 to test this hypothesis. For the European banks, distance has remained of the same importance it used to have. For the US, a declining importance of distance was found. Several interpretations of these findings are discussed.