THE DETERMINATION OF FOREIGN BANKING LOCATION

In this paper we examine the determinants of foreign bank location. We initially present some time series data on the postwar expansion of i nternational banking. We show that foreign branching increased very ra pidly from about 1960 to the mid-1980s and slowed significantly after 1985. One interpretation of this growth in foreign branching is that i t largely paralleled the increase in trade and foreign direct investme nt, although it may also have been encouraged by the improvements in c ommunications and the rapid financial innovation of the 1960s and 1970 s. To assess the role of trade and foreign direct investment on bank e xpansion, we employ a cross-sectional analysis of the pattern of forei gn bank offices. Whereas previous studies have focused on a single par ent or host country, our study extends the existing literature by anal yzing the location of nearly 2000 overseas offices across 37 parent an d 82 host countries. Our results suggest a significant relationship be tween the pattern of bank location, trade and foreign direct investmen t. We define a banking centre as one in which there are more foreign b anks than can be explained in terms of real business activity and we s how that the USA, UK, Switzerland, Singapore and Indonesia most clearl y qualify as banking centres. We also provide some evidence for a samp le of host countries that the abnormal number of bank offices is relat ed to capital market activities. (JEL E30, G21). Copyright (C) 1996 El sevier Science Ltd