The Determinants of Bank Internationalisation in Times of Financial Globalisation: Evidence From The World's Largest Banks, 1980-2007

Business History
ISSN: 0007-6791 (Print) 1743-7938 (Online) Journal homepage: https://www.tandfonline.com/loi/fbsh20
The determinants of bank internationalisation in

times of financial globalisation: evidence from the
world's largest banks, 1980–2007
Arjen Mulder & Gerarda Westerhuis
To cite this article: Arjen Mulder & Gerarda Westerhuis (2015) The determinants of bank
internationalisation in times of financial globalisation: evidence from the world's largest banks,
1980–2007, Business History, 57:1, 122-155, DOI: 10.1080/00076791.2014.977874
To link to this article: https://doi.org/10.1080/00076791.2014.977874
Published online: 23 Mar 2015.
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Business History, 2015
Vol. 57, No. 1, 122–155, http://dx.doi.org/10.1080/00076791.2014.977874
The determinants of bank internationalisation in times of financial

globalisation: evidence from the world’s largest banks, 1980 – 2007
Arjen Mulder1* and Gerarda Westerhuis1,2
1
Department of Finance, Rotterdam School of Management, Erasmus University; 2Department of
History and Art History, Utrecht University, the Netherlands
This article analyses the determinants of bank internationalisation, of the world’s

largest banks from the period 1980– 2007. The purpose of the article is twofold. First,
we show how a mixed-methods research design, in which we combine a variables-
based research with three case studies, can contribute to the field of business history.
The variables-based research helps to detect general trends, but the statistical analysis
alone only provides a limited understanding of the factors that drive the trends.
By analysing selected case studies, we provide a context within which the statistical
results are better understood. The second purpose is to understand trends in the
internationalisation strategies of banks from different regions, and during different time
periods. Contrasting with prior research, we find that Japanese and US banks have
exhibited different internationalisation pattern as opposed to the European banks. Also,
the determinants of bank internationalisation differ in importance over time. Using case
studies, we show the importance of the changing regulatory environment.
Keywords: bank; internationalism; financial; global; evidence
1. Introduction
Dating back to the Middle Ages banks have always had international presence.1 Modern
multinational corporate banks emerged in two waves, one from the 1830s – dominated by
colonial banking and big merchant houses such as Barings, JP Morgan, Rothschild – and a
second one starting in the 1960s.2 Yet, large scale bank internationalisation did not
accelerate until the 1980s when a process of financial globalisation began, characterised by
the liberalisation of the movement of international capital and the lifting of capital
controls.3 The removal of restrictions on the incoming and outgoing capital movements by
monetary authorities led to a tremendous increase in capital movements worldwide. Also
characteristic of this period was the rapid innovation in capital markets in which loans
were pooled, tranched and sold via securitisation4 and in which investors and borrowers
bypassed banks and transacted business directly (disintermediation). This process
continued in the 1990s and accelerated due to the increasing use of derivatives.5 ‘All these
developments increase the mobility of capital and facilitate the creation of a single global
financial space.’6 Thus, capital controls have been lifted, foreign investments have
mushroomed, and financial regulation has loosened. As a result, the competitive structure
of the financial market has changed fundamentally which forced banks to reconsider their
strategies to remain competitive. Consolidation, product diversification, and internatio-
*Corresponding author. Email: amulder@rsm.nl
q 2015 Taylor & Francis

Business History 123
nalisation are strategic imperatives that have been used to maintain competitive
advantage. Thus, at first glance it seems that the financial industry has rapidly globalised;
foreign assets of banks have increased enormously as have their international activities.
Larsson et al. for example found that three large European banks (UBS, Barclays and ABN
AMRO) converged on a strategy of diversification and internationalisation since the
1980s.7 The development of financial globalisation has not been a linear process though,
as shifting economic and financial conditions of countries changed at a different pace
depending on differences in social and political forces.8 Therefore, one can question
whether banks from different regions converge on the same strategy of internationalisation
in times of financial globalisation. In other words, has there been a clear trend in the
internationalisation strategies of banks from different countries since the 1980s? And if
not, what factors explain the different patterns across countries and across time?
To compare banks’ internationalisation strategies across countries, we need to focus
on the determinants of bank internationalisation of a large set of banks worldwide.
Therefore we selected 46 of the world’s largest banks from the period 1980– 2007.
We deliberately chose to stop before the recent financial and economic crisis of 2008
because many banks in the sample subsequently received some form of state support or
simply disappeared, and this would have distorted the analysis. The approach seeks
statistical generalisations based on the analysis of a few aspects across a larger sample.9 To
analyse whether the process of financial globalisation differs across countries and across
time, in the analyses we compare regions (US, Europe and Japan) and the periods 1980 –
1989, 1990 – 1998, 1999 – 2007.10 The 1980s were characterised by the (aftermath of the)
international debt crisis whereas the 1990s on the other hand were generally characterised
by economic growth. Approximately from the turn of the millennium onwards, the
financial world entered a more turbulent era again.
To identify firm and country-level factors that otherwise would not be visible at an
aggregate level, we also used the qualitative and multi-aspects approach.11 We believe that
the two approaches are complementary in that the qualitative approach ‘provides some
severe tests for generalizability of [ . . . ] theories’.12 We describe the most important
developments in the US, Germany, and Japan, and analyse in more detail a representative
bank of each country. The cases, based on extant literature, show that context, in particular
the regulatory environment, which is hard to measure in variable-based research, is a
factor of vital importance in explaining different bank strategies across countries.
In section 2 of this article, we discuss the determinants of bank internationalisation.
Section 3 elaborates on the methodology. The data selection is described in section 4,
followed by the regression analyses in section 5. Section 6 focuses on the three case
studies, and section 7 contains our conclusions.
2. Why do banks internationalise?13

The literature on bank internationalisation distinguishes between studies that focus on the
question why banks internationalise and studies articulating how they internationalise and
what organisational form (e.g. branch, joint venture or acquisition) they choose.14
The lack of knowledge about foreign markets forms an obstacle for international
operations. Firms that expand abroad therefore face costs which arise from unfamiliarity
due to cultural, political, fiscal and economic differences. Costs also increase from the
need to coordinate across geographic distance.15 Banks differ from manufacturing firms in
the nature of their products that are information-intense. In particular this counts for retail
banking where trust and access to information are crucial in the development of
124 A. Mulder and G. Westerhuis
relationship banking.16 Keeping these liabilities of foreignness in mind, the question why
banks expand their activities abroad becomes apparent. Grubel, one of the first to address
this question, argued that to overcome these barriers banks will establish themselves
abroad if they have some sort of comparative advantage.17
Most well-known theories for multinational firms (and banks) are the Eclectic Theory
and Internalisation Theory.18 The internalisation theory departs from the assumption that
market failure occurs not only in the home market but also abroad. It states that transaction
costs lead firms to internalise the market; in other words an arm’s length contractual
relation (market) is replaced by internal hierarchies (firm). By owning assets it reduces
transaction costs of negotiating (transaction costs as defined by Coase).19 The follow-the-
client motive is an important example.20 The rationale why banks follow their clients
abroad is that they reduce the risk that they lose their clients’ business to the host country
banks. Since the bank already has a relationship with the customer, it has an informational
advantage over local banks.21 Thus long-term bank – client relationships and the market
for information about clients are considered to be best exploited within the firm
(internalisation) than via an external market. Kindleberger argues that it is hard to
determine whether banks follow or lead their clients across borders. He finds it plausible
that ‘where banks are aggressive in building world networks, and industries focus on
single projects, banks lead’, but the other way around, under opposite conditions the
reverse could be the case.22
In contrast to the follow-the-client motive, which can be seen as defensive expansion,
the market seeker motive is an offensive expansion. This motive argues that banks are
motivated by self-interest and seek new market opportunities. They have a tendency to
locate in financial centres to be closely located to financial innovation.23 It is argued that
this motive of seeking profitable opportunities has become more important as a result of
greater focus on the creation of shareholder value.24
The Eclectic Paradigm stresses three important factors in internationalisation:
ownership, location and internalisation (referred to as OLI paradigm).25 It starts from the
notion that firms that want to operate in foreign markets need to possess certain advantages
to compensate for an information handicap. Ownership advantages are seen as the
intangible assets of firms, while the internalisation advantages originate in market failure.
Thus, market failure leads to internalisation and ownership of a particular set of assets
makes one firm a multinational rather than another.26 Location advantages relate to the
host as well as the home country, explaining why a firm chooses to be present at a foreign
market rather than trading at arm’s length (e.g. barriers to trade). In other words, it
determines the form of the investment. The eclectic theory ‘retains the assumption of the
Hymer-Kindleberger theory that the multinational enterprise operates at a disadvantage to
the incumbent firms and this disadvantage generates a need for a compensating
advantage’.27 Also it assumes that firms develop an ownership advantage in the domestic
market and then apply this abroad.
As these theories are rather static, whereas internationalisation is a dynamic process,
some historians turned to the internationalisation process theory.28 The theory considers
learning and how it affects decision-making within a firm to be important.29 It is argued
that physical distance leads to uncertainty which can be acquired however by experimental
learning30 or by learning via imitation, and incorporating people or organisations.31
Incrementalism is an important concept, which implies that the more a company learns of
a foreign market, the lower the perceived risks, and the higher the level of investment in
that foreign market. In a more recent study, Johanson and Vahlne emphasise that except
for passive uncertainty avoidance also active opportunity development is an important
factor for understanding internationalisation.32 In general one can conclude that the
process theory implies that firms’ comparative advantages change over time.
Next, we discuss in more detail important motives that are based on generally
formulated theories. First, an important ownership advantage could be skills and expertise.
These capabilities, stemming from financial development in the home country, which can
be applied abroad at relatively low costs, gives banks a comparative ownership advantage.
Therefore it is argued that the degree of home country financial development positively
associates with bank internationalisation.33 Secondly, banks from developed countries are
more internationalised than those from developing countries.34 The rationale behind this is
that economic development induces financial innovation. Third, the size of the home
country matters; banks from larger countries internationalise less than those from smaller
economies.35 Or the other way around, banks facing small home markets and/or mature
home markets are more inclined to internationalise. Tschoegl argues that domestic limits
to growth relates to FDI in banking.36 Westerhuis found this incentive to be relevant for
Dutch banks. They expanded abroad because they were confronted with a saturated and
oligopolistic home market after some major domestic mergers in the 1960s.37 Lastly, more
open economies, exemplified by a high degree of trade openness and capital account
openness, show higher degrees of bank internationalisation.
Lane and Milesi-Ferretti test these drivers for financial globalisation empirically.38
They find that cross country variation in the extent of financial globalisation, measured as
foreign assets to GDP, indeed can be associated with some macroeconomic variables.
They differentiate between advanced, developing and developed countries, but do not
distinguish between individual countries. Therefore they miss country-specific factors, of
which regulation in the host or home countries stands out in particular.39 The Nordic
countries are a good example where banking regulation of the home market hindered
domestic banks’ expansion abroad, and foreign banks from entering the country.40
Regulation in the home market can also act as a push factor. Thus, banks seek other
opportunities in less regulated countries, when protection of domestic banks constrains
domestic competition.41
3. Methodology
We apply a mixed methods research design, in which we combine quantitative and
qualitative analysis.42 In the mix of methods, we put most emphasis on the quantitative
analysis, with which we aimed to detect statistically significant trends. Yet, statistical
analysis alone is not sufficient to understand the context within which a trend should be
placed. We therefore complemented the regression analysis with case studies. The cases
have the purpose to illustrate and to highlight the relevance of the context.
In the quantitative analysis we test whether bank internationalisation associates with
the following macroeconomic state variables postulated by King and Levine: economic
development of the home country (measured as GDP per capita), and financial
development of the home country (deposit money banks to total deposits).43 We also
include the degree of openness of the home economy (trade openness and capital account
openness).44 Lastly, we include the size of the home country ( population), cf. the OLI
paradigm.45 Combined, the four macroeconomic state variables provide some
Schumpeterian measure of the level of financial and economic development of a home
country.46 A higher level of financial development will spur economic development.47 In
turn, a higher degree of home country economic development can be seen as a facilitator
for that country’s internationalisation of corporations.48
In addition to an analysis that links bank internationalisation to (financial)

development, economic theory and historical case studies show that the follow-the-
client motive is also an important reason for banks to internationalise. So, we added this
motive to the variables. The indicators we use are FDI outflow, real effective exchange
rates, and export of goods and services. Lastly, we combined the macroeconomic variables
and the follow-the-client indicators into one model.
However, these base regressions do not allow for differentiation between countries
nor between time periods. Therefore, we analysed geographic effects, cf. Buckley, who
claims historians would benefit from combining historical comparators with geographical
ones.49 To understand what explains differences in bank internationalisation over
time, and across countries we ran the regressions again by excluding the US or Japan, and
by dividing the period 1980 –2007 into three sub-periods (1980 – 1989, 1990– 1998,
1999 –2007). The statistical analyses show a mix of country-specific and time-specific
effects, which demonstrates that there are limits to making generalisations and calls for
further analysis.
We used the case study method to better understand these country-specific and time-
specific effects, with the purpose of sketching the context within which bank
internationalisation has taken place. Historical case studies are in particular a good way
to show the complex processes behind the internationalisation strategies of banks within
their respective contexts.50 As the purpose of the cases is to illustrate the role of historical
and geographical context to the internationalisation process, most important in selecting
the countries was that we ended up with countries of different financial systems and thus
different institutional settings. Most bank internationalisation studies focus on three home
regions, namely the US, Japan and Western Europe.51 We stick to that convention, but
instead of covering all Western European countries of the sample, we select Germany
alone. In banking studies, countries as Germany and Japan are often taken as examples of
so-called bank-based financial systems, in contrast to the US (and UK) market-based
financial systems.52
We selected the Bank of America, Deutsche Bank, and Sumitomo Bank. The
choice for these banks is inspired by variables-based analysis. In the variables-based
analysis we rely on the elements stated by King and Levine, being the financial depth
indicator, the importance of the banks for their financial systems, and their role as
providers of credit.53 Their choice for variables is driven by the logic that innovative
banks positively contribute to the macroeconomic growth of a country via financial
development. Their variables have been applied by numerous papers, even in different
contexts.54 When choosing the banks as illustrating cases, we thus ensured these banks
would significantly contribute to the three main indicators of King and Levine. All the
banks in the sample belong to the top five in terms of size in their home country, so
all contribute to the financial depth indicator. Not all banks would fall under the
‘systemic important banks’ as classified by the IMF in 2014, but the Bank of America,
Deutsche Bank, and Sumitomo Bank definitely do.55 Moreover, all three banks are
important providers of business loans. The internationalisation strategies of the three
banks reflect very well the regression outcomes on the US, Japan and Europe
respectively. The use of case studies in this article contrasts with the use advocated in
the Introduction of this special issue. De Jong, Higgins and Van Driel (this issue)
encourage observing and analysing existing case studies to formulate and/or test
theory and hypotheses. We argue that case studies can also be very helpful to get
more insight into the regression results, which are often generalisations neglecting the
broader context.
4. Data and sources

The mixed methods research design combines qualitative analysis (regression technique)
with qualitative analysis (case studies), based on secondary sources. The purpose of the
qualitative analysis is to complement the regression outcomes by providing a
geographical and historical context to the overall regression results. As our research
question asks for a comparative approach in geographic space and in time, we consider
case studies based on secondary sources more appropriate than an in-depth case study of
one country or one bank, based on archival research. Thus, for the cases we relied on
existing literature, both corporate histories and studies on the banking sector of a
particular country. In Germany where there is a long tradition of commissioned company
histories, two impressive monographs have been published on the Deutsche Bank, one by
Gall et al. and more recently another by Chris Kobrak.56 Both studies give valuable
information of the history of the bank in its historical context. Unfortunately, these
company histories are not available for Bank of America and Sumitomo Bank. For both
banks we had to rely on their corporate websites, whereas for Bank of America we also
gathered information from Canals’ book Universal Banking, in which he discusses the
impact of the transformations in the international financial system on banks’
performance. He attributes a couple of pages to Bank of America.57 Moreover, the
extant literature, mostly historical and economical articles and books on banking, gives a
clear overview of the context these banks operated in. It is this historical and geographic
context that we are mostly interested in.
For the quantitative analysis, we relied on annual report data and macroeconomic
databases. We constructed several variables. Internationalisation of banks is often referred
to as either international banking or multinational banking. They are used arbitrarily but
there is an important distinction between the two. Multinational banks own and control
branches or subsidiaries in more than one country while international banking only
includes foreign trade financing and lending to firms and governments in foreign countries.
The latter type of cross border lending does not require facilities such as branches.58 To
overcome this problem, we included foreign sales, foreign assets and foreign employees
when calculating the degree of internationalisation (DOI), which captures the broader
definition of multinational banking. The DOI is a standard measure in international
business, being the non-weighted average of foreign to total sales, foreign to total assets,
and foreign to total employment.59 The DOI measure has been applied to bank
internationalisation in studies by Hejazi and Santor, and Focarelli and Pozzolo, for
example.60
The dataset consists of the five largest banks measured by total assets in the US, the
UK, Japan, Germany, France, Switzerland, Spain and the Netherlands, as determined in
the benchmark years 1980, 1990, and 2000.61 The investigated period is 1980 through
2007. Three additional selection criteria were used: (1) the bank or its predecessor(s) must
have been involved in internationalisation activities between 1980 and 2007; (2) it must
have reported on its international activities in its annual reports in such a way that a DOI
could be calculated;62 and (3) included in the Banker’s Top 100 banks listing so that we
could ensure that e.g. the fifth-largest bank in every country indeed belonged to the
world’s leading banks.63 This led to 46 banks in the sample; the banks that dominated both
international banking and foreign direct investment (FDI) in banking. Table 1 lists the
sample of banks and the period over which we have obtained their data. Table 2 lists some
descriptive statistics of the macroeconomic variables. Most of the variables have outlier
observations (indicated by positive or negative skewness), but these outliers are relatively
Table 1. Sample overview.
DOI
Country Bank Sample 1980 1990 2000 2007
France BNP 1980– 2007 27.6 30.5 47.7 39.6

Crédit Agricole 1980– 2007 2.3 4.0 17.9 42.0
Crédit Lyonnais 1980– 2002 11.3 32.5 25.1 n.a.
Paribas 1980– 1998 28.1 39.4 n.a. n.a.
Societé Generale 1980– 2007 29.2 27.4 34.9 44.9
Germany Bayerische Hypobank 1980– 1997 4.8 4.4 n.a. n.a.
Commerzbank 1980– 2007 14.8 17.8 26.4 13.4
Deutsche Bank 1980– 2007 9.3 23.6 59.0 59.5
Dresdner Bank 1980– 2007 8.3 8.4 32.5 33.9
Hypovereinsbank 1998– 2007 n.a. n.a. 36.1 20.8
Vereinsbank 1980– 1997 4.9 6.5 n.a. n.a.
Westdeutsche Landesbank 1980– 2007 8.6 12.3 41.1 33.2
Japan Dai Ichi Kangyo 1980– 2000 29.0 19.1 15.0 n.a.
Industrial Bank of Japan 1980– 2000 12.1 26.3 20.8 n.a.
Mitsubishi Bank 1980– 1995 31.5 33.5 n.a. ..
Mizuho Group 2001– 2007 n.a. n.a. n.a. 23.0
Sumitomo Bank 1980– 2007 36.4 35.0 16.5 16.0
Tokyo 1980– 1995 31.4 31.3 n.a. n.a.
Tokyo-Mitsubishi 1996– 2007 n.a. n.a. 34.3 30.3
Netherlands ABN 1980– 1989 30.5 n.a. n.a. n.a.
ABN-AMRO 1990– 2007 n.a. 32.7 75.0 71.8
AMRO 1980– 1989 13.5 n.a. n.a. n.a.
Fortis Bank 1990– 2007 n.a. 28.8 33.6 23.3
ING Bank 1992– 2007 n.a. n.a. 61.6 63.3
NMB Bank 1980– 1991 11.0 16.8 n.a. n.a.
Rabobank 1981– 2007 n.a. 14.5 20.2 25.2
Spain Argentaria 1993– 1998 n.a. n.a. n.a. n.a.
Banco Bilbao Vizcaya 1987– 2007 n.a. 11.5 56.0 62.2
Banco Central-Hispano 1991– 1998 n.a. n.a. n.a. n.a.
Santander 1985– 2007 n.a. 29.3 59.5 62.0
Switzerland Credit Suisse 1980– 2007 26.7 47.5 69.3 71.2
SBC 1980– 1997 41.2 38.6 n.a. n.a.
UBS 1980– 2007 27.9 37.8 65.5 66.0
UK Barclays 1980– 2007 51.5 44.3 28.5 54.0
HSBC 1990– 2007 n.a. 44.4 56.4 63.1
Lloyds TSB 1980– 2007 40.9 18.9 15.1 2.8
Midland 1980– 1991 21.4 14.2 n.a. n.a.
National Westminster 1980– 2000 34.7 29.2 24.2 n.a.
Royal Bank of Scotland 1996– 2007 n.a. n.a. 15.3 42.4
Standard Chartered 1980– 2007 72.6 77.0 79.7 86.9
USA Bank of America 1980– 2007 48.3 21.9 7.6 10.4
Chase Manhattan 1980– 2007 51.7 31.9 28.0 27.0
Chemical Banking 1980– 1995 38.4 15.3 n.a. n.a.
Citicorp 1980– 2007 53.6 41.3 46.1 48.8
JPMorgan 1980– 1999 47.7 41.7 n.a. n.a.
Manufacturers Hanover 1980– 1990 54.6 38.6 n.a. n.a.
small in numbers (indicated by the fact that most means and medians are close in value,
and by the fact that most distributions have fairly high kurtosis).
In order to overcome differences in accountancy definitions, we have relied
predominantly upon US reporting data. Most of the banks have had a US subsidiary for
Table 2. Descriptive statistics.
Bank Capital
FDI Real effective Deposit money banks deposits to Export of goods Trade GDP per account
DOI outflow exchange rate to total deposits GDP and services openness capita Population openness
Mean 0.33 0.00 99.28 0.97 0.94 0.45 55.52 0.25 0.88 2.22
Median 0.31 0.00 99.01 0.99 0.73 0.22 50.07 0.24 0.60 2.48
Maximum 0.88 0.00 136.26 1.00 2.30 5.59 145.04 0.66 3.07 2.48
Minimum 0.00 0.00 71.15 0.84 0.26 0.01 16.01 0.04 0.06 2 1.15
Standard 0.19 0.00 11.65 0.03 0.47 0.64 31.96 0.12 0.78 0.73
deviation
Skewness 0.59 2.91 0.49 21.52 1.18 3.45 0.97 0.42 1.41 2 2.81
Kurtosis 2.99 13.81 3.82 4.50 3.42 19.00 3.15 2.64 4.11 9.36
Number of 946 1,341 1,380 1,368 1,312 1,187 1,380 1,380 1,350 1,325
observations
Notes: All macroeconomic indicators expressed in current USD, unless indicated differently. All data covering the 1980– 2007 period (see Table 1 for individual bank coverage), except
for the Swiss FDI data which was not available prior to 1983. FDI outflow and Export of goods and services measured as percentages of GDP. Per capita GDP in current USD100,000.
Population in hundred millions. Trade openness (ratio of exports plus imports to GDP) as in Lane and Milesi-Ferretti, “Drivers of Financial Globalization”. Capital account openness is
Chinn–Ito index of de jure capital account openness (Chinn and Ito, “New Measure of Financial Openness”). Real effective exchange rate is the nominal effective exchange rate
(relative to a basket of several foreign currencies) divided by a price deflator, indexed 2005 ¼ 100. Financial depth indicator (Bank deposits to GDP) as in Beck and Demirgüc -Kunt,
“Financial Institutions and Markets”. Relative bank size measure (ratio of deposit money bank assets to central bank plus deposit money bank assets) as in Beck, Demirgüc -Kunt and
Levine, “New Database on Structure”. The number of DOI observations refers to unique firm-year observations. For the macroeconomic variables we have a maximum of 240 unique
country-year observations (eight countries over 30 years), which coincides with a maximum of 1,380 firm-country-year combinations.
Business History
129
(almost) the entire sample period, and have thus been obliged to report their so-called 20-F
filing to the US Securities and Exchange Commission (SEC); this means that non-US
private issuers of securities are required to file form 20-F with the SEC. Where possible,
we have used the US reporting data. For the (very few) lacking observations, we have
taken the original annual report data, converted these into USD values, and have
benchmarked these for an overlapping time window with the 20-F filing data. The impact
of any remaining differences in accountancy definitions have been checked by normality
tests on the residuals in the regressions.
Mergers and acquisitions affected the dynamics of the sample; the number of banks
decreased from 34 banks in 1980 to 27 banks in 2007. The usual data problem of
survivorship bias is tackled by the selection criteria: the sample includes poorly performing
banks as well. They were typically acquired by their competitors (e.g. Crédit Lyonnais,
Midland Bank, National Westminster). In selecting the sample, we set the start of the sample
period to 1980. The reason for this start date is twofold. First, financial globalisation did not
accelerate until the 1980s. Therefore an analysis of the 1980s is a logical start for the overall
problem statement. Secondly, there is a pragmatic restriction: while data collection on
financial, accountancy and internationalisation data is challenging for the 1980– 1990
period, before 1980 availability becomes even scarcer, which makes it impossible to
determine DOI. Compared to Tschoegl, we omit banks from Australia, Belgium, Canada,
and Sweden.64 It may be that from the other countries we lack some individual banks.
However when comparing the sample with the Banker Top 100 List, it is an adequate
representation of the major international banking activities in the 1980s and 1990s. The
sample based on the aforementioned criteria leads to a group of banks with relatively stable
characteristics. The choice of size as a selection criterion implies that the banks, in terms of
assets, capital or profitability, form a large part of the largest 100 or largest 1000 banks in the
world. There is however no indication that they had a relatively higher share of profitability
or capital (not reported here). Based on asset size, the concentration in the sample has
remained stable and low between 1980 and 2007. There have been shifts in relative sizes for
example US banks dominated the sample in the 1980s, the Japanese banks in the late 1980s,
while the focus shifted to European banks in the 1990s.
5. Variables-based analysis: determinants of internationalisation

Figure 1 shows the DOI of the largest banks in eight different countries. On one hand the
sample average shows an upward trend in bank internationalisation over time, but at the
same time the US and Japanese banks in the sample become increasingly more oriented
towards their home country. What explains these differences?
The first test focused on the extent to which sample-wide bank internationalisation
associates with some macroeconomic state variables, such as trade openness, per capita
GDP, population size, and capital account openness. reports the regression results. For
technical reasons, we had to incorporate a lagged dependent variable as a regressor.65 The
inclusion of a lagged dependent variable can create econometric problems when using
ordinary least squares (OLS). The method as proposed by Arellano and Bond tackles these
econometric problems, at the expense of more complexity in the estimation.66 To highlight
the strength of our results, we show that the conventional OLS estimates are qualitatively
similar.67 We refer to the Arellano-Bond results as the generalised method of moments
(GMM) model (labelled after the estimation method) as opposed to the OLS model.
In Model 1, we use most of the drivers of financial globalisation, i.e. economic
development (GDP per capita), financial development (deposit money banks to total
0.60
0.50
0.40
0.30
0.20
0.10
Europe average
Japan average
USA average
0.00
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Figure 1. Internationalisation of banking.
Note: The DOI for the unweighted average of all US banks in our sample, all Japanese banks, and all
European banks in our sample. The DOI is the unweighted average of foreign to total sales, foreign to
total assets, and foreign to total employment.
deposits), size ( population), and degree of openness of the home country (trade openness
and capital account openness). It appears that for the banks in the sample, the DOI is first
of all driven by stickiness (i.e. the DOI of last year). The ‘deposit money banks to total
deposits’ variable indicates the relative role of deposit money banks (instead of central
banks) in the financial intermediation in a country. Higher levels of this ratio can be readily
interpreted as a higher level of financial development in the home country. This variable
strongly associates positively with bank internationalisation. Capital account openness
(which measures the extent and intensity of capital controls in the home country) also has a
statistically significant positive impact on DOI. That is, the higher the degree of financial
openness in the home country, the higher the banks’ DOI. In addition, the GMM estimates
show that bank internationalisation is positively correlated with trade openness, and
negatively correlated with per capita GDP (as an indicator of the level of economic
development in the home country) and negatively correlated with the home country’s
population (as an indicator of the size of the home market).
In Model 2, we test the ‘follow-the-client’ motive, and investigate to what extent bank
internationalisation associates with indicators of FDI and some associated variables. The
regression results show that outward FDI (from the home country to the rest of the world)
has a positive relationship with DOI. The real effective exchange rate has a statistically
significant negative impact on banks’ DOI. This can be interpreted as a typical purchasing
power parity (PPP) problem: if the real effective exchange rate increases, then the
currency appreciates (relative to a basket of several foreign currencies) which typically
encourages imports rather than exports. In Model 2 I expected that the exports of goods
and services would have an impact on bank internationalisation, but it appeared to be

statistically insignificant. The ‘exports of goods and services’ has a positive impact on
bank internationalisation, but this effect is only detected in the GMM model.
In Model 3, we combine the variables used so far. Some of the independent variables
could not be combined in one regression specification, due to multicollinearity problems,
e.g. ‘exports’ and ‘trade openness’ are strongly correlated, so only one of them could be
included. It appears that all variables that already had a statistically significant slope
estimator in either Model 1 or in Model 2, remained statistically significant, and in
addition the signs of the slope estimators remained equal, and their sizes remained roughly
the same. This time, however, per capita GDP and population size did become statistically
significant in the OLS estimates only, both of them exhibiting an expected sign. The higher
the per capita GDP, the higher the level of economic development; it results in a higher
propensity to engage in cross-border investments. Population has an expected negative
slope estimator since it indicates the size of the home market; the larger the home country,
the smaller the incentive to invest abroad. Unfortunately the results for per capita GDP and
population appear statistically insignificant for the GMM estimates.
The results of Table 3 indicate that bank internationalisation associates with some
macroeconomic variables. The descriptive statistics of Table 2 however, already revealed
that most macroeconomic time series had a small number of outliers. These outliers might
distort the regression analysis. The outliers can either be attributed to a small number of
countries or to a special time period. We analysed their impact by performing a so-called
‘dominant group analysis’ (in which we assessed the impact of one country at a time) and a
so-called ‘dominant time period analysis’ (in which we isolate the regression analysis for a
particular time period).68
The choice for the dominant group analysis is provided in Figure 1, which reveals that
the US and Japanese banks in the sample have on average become much more nationally
oriented, whilst the rest of the sample increased in internationalisation. This contradicting
pattern calls for a separate analysis of the US and Japanese banks, in which one investigates
their structural drivers of internationalisation. Unfortunately, we have too few observations
to analyse the banks of these two countries separately. Therefore, we do the opposite in
Table 4; namely we exclude one country’s banks at a time, and assess how the base-case
results change. The same holds for the time periods analysis. For example, the 1980s were
characterised by the (aftermath of the) international debt crisis, which has had a dramatic
impact on the financial industry. The 1990s on the other hand were generally characterised
by economic growth (except for Japan), whilst approximately from the turn of the
millennium onwards the financial world entered into a more turbulent era again.
5.1 Regions: US, Europe and Japan

In Table 4, we assess the impact of excluding either the US or Japan, given the specificity
of these two countries in the sample. At least two regression results stand out. First of all,
it appears that the ‘Deposit money banks to total deposits’ (as an indicator of the relative
importance of deposit money banks in the financial system of a country) positively
associates with bank internationalisation in general (i.e. when analysing all countries).
This remains positive when excluding the US, but once we exclude Japan, then the sign of
the slope estimator flips into a negative one, and the significance of the slope estimator
decreases. Hence, apparently the Japanese banks drive the base-case results of overall
positive slope estimator to a large extent. In other words, for the Japanese banks in the
sample, deposit money banks drive the internationalisation process. They may for example
Table 3. Structural drivers of bank internationalisation.
Dependent variable is DOI
Model 1 Model 2 Model 3
Independent variables OLS GMM OLS GMM OLS GMM
Intercept 2 0.5*** (0.2) 0.1*** (0.0) 2 0.4*** (0.1)

Lagged DOI (1y) 0.8*** (0.0) 0.7*** (0.0) 0.8*** (0.0) 0.8*** (0.0) 0.8*** (0.0) 0.5*** (0.1)
Deposit money banks to 0.6*** (0.2) 0.9*** (0.0) 0.6*** (0.1) 0.7*** (0.1)
total deposits
Trade openness 0.1 (0.1) 0.1*** (0.0) 0.0 (0.1) 0.2** (0.0)
GDP per capita 2 1.5 (4.0) 2 6.5*** (1.0) 10.9*** (3.8) 0.4 (7.0)
Population 0.9 (2.5) 2 1.1 (3.2) 2 5.2* (2 3.0) 27.7 (11.1)
Capital account openness 0.6 (0.4) 1.5 (0.9)
FDI outflow 0.1** (0.1) 0.1*** (0.0) 0.1** (0.1) 0.1 (0.1)
Real effective exchange rate 2 0.1** (0.0) 2 0.1*** (0.0) 2 0.1* (0.0) 20.1*** (0.0)
Bank deposits to GDP 2 3.7** (1.9) 0.5 (2.0)

Export of goods and services 2 0.4 (0.5) 0.3*** (0.1)
n 825 759 826
Adj. R2 0.93 0.92 0.92
Durbin-Watson 1.97 2.01 2.05
Instrument rank 45 40 45
Hansen’s J-statistic 39.46465 38.19995 36.282878
Prob(J-statistic) 0.449112 0.369776 0.476997
Notes: The table shows three models of fixed-cross sectional effects panel data regressions of structural factors on the bank degree of internationalisation (DOI) for the entire sample.
Each model is estimated using OLS estimation, and a GMM estimation as in Arellano and Bond (1991). Standard errors in parentheses. Slope estimators and standard errors reported in
percentage points. Lagged DOI was added to correct for autocorrelation. All macroeconomic indicators expressed in current USD, unless indicated differently. All data covering the
1980–2007 period (see Table 1 for individual bank coverage), except for the Swiss FDI data which was not available prior to 1983.FDI outflow and Export of goods and services
measured as percentages of GDP. Per capita GDP in current USD100,000. Population in hundred millions. Trade openness (ratio of exports plus imports to GDP) as in Lane and Milesi-
Ferretti, “Drivers of Financial Globaliation”. Capital account openness is Chinn-Ito index of de jure capital account openness (Chinn and Ito, “New Measure of Financial Openness”).
Business History
Real effective exchange rate is the nominal effective exchange rate (relative to a basket of several foreign currencies) divided by a price deflator, indexed 2005 ¼ 100.Financial depth
indicator (Bank deposits to GDP) as in Beck and Demirgüc -Kunt, “Financial Institutions and Markets”. Relative bank size measure (ratio of deposit money bank assets to central bank
plus deposit money bank assets) as in Beck, Demirgüc -Kunt and Levine, “New Database on Structure”. Standard errors are heteroskedasticity consistent using White cross-section
estimation. ***Significant at 1% level; **Significant at 5% level; *Significant at 10% level.
133
134
Table 4. Country effects of bank internationalisation.

All countries All countries minus USA All countries minus Japan
Model 3 OLS Model 3 GMM Model 3 OLS Model 3 GMM Model 3 OLS Model 3 GMM
Intercept 20.4*** 2 0.6* 2 0.1

(0.1) (0.3) (0.4)
Lagged DOI (1y) 0.8*** 0.5*** 0.8*** 0.5*** 0.8*** 0.6***
(0.0) (0.1) (0.0) (0.0) (0.0) (0.0)
FDI outflow 0.1** 0.1 0.1* 0.1 0.1** 0.1*
(0.1) (0.1) (0.1) (0.1) (0.1) (0.1)
Real effective exchange rate 20.1* 2 0.1*** 2 0.1* 2 0.1*** 2 0.1** 20.1***
A. Mulder and G. Westerhuis
(0.0) (0.0) (0.0) (0.0) (0.0) (0.0)

Deposit money banks to total deposits 0.6*** 0.7*** 0.6*** 0.7*** 0.3 20.1**
(0.1) (0.1) (0.2) (0.1) (0.4) (0.0)
Bank deposits to GDP 23.7** 0.5 2 3.6* 1.8 2 2.6 1.3
(1.9) (2.0) (1.9) (1.2) (2.4) (0.8)
Trade openness 0.0 0.2** 0.0 0.1*** 2 0.0 0.1***
(0.1) (0.0) (0.1) (0.0) (0.1) (0.0)
GDP per capita 10.9*** 0.4 7.8 2 3.0 9.8** 21.2
(3.8) (7.0) (6.5) (4.7) (4.1) (1.9)
Population 25.2* 2 7.7 25.5 44.0** 2 5.3 21.9
(23.0) (11.1) (37.4) (17.7) (3.6) (4.7)
N 826 765 693 638 712 657
adj. R2 0.92 0.92 0.94
Durbin-Watson 2.05 2.06 2.05
Instrument rank 45 39 39
Hansen’s J-statistic 36.282878 31.47020 31.04678
Prob(J-statistic) 0.4769970 0.442709 0.463857
imply that particularly the deposit money banks internationalise, or that their funding in
the home country is relatively cheap vis-à-vis their foreign competitors.69 Another striking
regression result is the fact that overall, ‘Population’ (as an indicator of the size of the
home market) negatively correlates with bank internationalisation (which is conform the
intuition). Yet, when excluding the US, the sign of the slope estimator flips to positive, and
the statistical significance increases. This suggests that for the US banks in the sample the
home market is seen as an alternative to internationalisation whereas for the other banks in
the sample, the home market facilitates bank internationalisation. These two observations
call for a more detailed analysis, which we will do below, when focusing on three case
studies. First, however, we put any country-specific effects in an historical context by
zooming in on a particular time period.
5.2 Time periods: 1980– 1989, 1990– 1998, and 1999 –2007
In Tables 5a, 5b and 5c, we respectively analyse the time period effects of bank
internationalisation for all countries, all countries except the US, and all countries except
Japan. In Table 5a, we analyse the time period effects for all banks in the sample. There are
at least four effects worth pointing out. First, it appears that the negative slope estimator
for ‘Population’ in the overall regression results are particularly driven by the 1980– 1989
period. In that period not only the size of the slope estimator is largest, but also it is the
only period for which the slope estimator was statistically significant. This suggests that
as far as the home market can be treated as an alternative to bank internationalisation,
the argument predominantly holds for the 1980s. Second, the overall regression
results suggest that ‘per capita GDP’ does not have a clear association with bank
internationalisation.70 We expected a positive relationship with bank internationalisation,
the logic being that the higher the level of economic development of the home country, the
larger the financial innovations in these countries, and thus the larger the comparative
advantage over host countries.71 The results of Table 5a, however, suggest that indeed
there is a positive collection between per capita GDP and bank internationalisation, but
only in the 1990s. For the other periods the overall regression results seem indecisive.
A third observation from Table 5a is that ‘Bank deposits to GDP’ has a very strong
importance only in the most recent years of the sample. This suggests that the relative
importance of the financial industry to the home economy, and the level of financial
development in the home industry particularly increased in the most recent years. To some
extent this may be in line with the ‘too big to fail’ arguments, but the variable may also
pick up the effect that over time, (financial) services have become more-and-more
important to the countries in the sample. Lastly, we would like to highlight that ‘Trade
openness’ has a positive relationship with bank internationalisation in general, but in the
last time period this relationship suddenly becomes negative (whilst still statistically
significant). This is unexpected and, as we will argue below, is explained by some country-
specific effect.
In Table 5b, we repeat the analysis presented in Table 5a, but exclude the US. When
dropping one country, we have too few observations to conduct a GMM analysis for the
last time period. The number of observations does suffice for an OLS estimate. Since for
most analyses the OLS estimates are in line with the GMM results, we take the OLS results
as the proxies for the 1999– 2007 period. As a first observation in Table 5b, we note that
after excluding the US banks from the sample, ‘Trade openness’ consistently has a positive
relationship with bank internationalisation. This suggests that the counterintuitive result
that ‘Trade openness’ might negatively associate with bank internationalisation in the
Table 5a. Time period effects of bank internationalisation (all countries).
136
All countries, all years 1980– 1989 1990–1998 1999– 2007

Model 3 OLS Model 3 GMM Model 3 OLS Model 3 GMM Model 3 OLS Model 3 GMM Model 3 OLS Model 3 GMM
Intercept 2 0.4*** 1.4 2 0.2 0.7*

(0.1) (0.9) (0.4) (0.3)
Lagged DOI (1y) 0.8*** 0.5*** 0.6*** 0.1*** 0.6*** 0.4*** 0.5*** 0.4***
(0.0) (0.1) (0.1) (0.0) (0.1) (0.0) (0.1) (0.1)
FDI outflow 0.1** 0.1 2 0.8** 2 1.2*** 2 0.3 0.2 0.1 2 0.0
(0.1) (0.1) (0.4) (0.2) (0.3) (0.3) (0.1) (0.2)
Real effective 2 0.1* 2 0.1*** 0.0 0.1** 0.0 0.1 2 0.3*** 2 0.3***
exchange rate
(0.0) (0.0) (0.0) (0.0) (0.1) (0.1) (0.1) (0.1)
Deposit money 0.6*** 0.7*** 2 1.1 2 1.5*** 0.2 0.8*** 2 0.1 2 0.9
banks to total
deposits
(0.1) (0.1) (0.9) (0.2) (0.4) (0.2) (0.3) (1.6)
Bank deposits to 2 3.7** 0.5 8.0 5.3*** 2 0.9 2 8.7 21.3*** 23.2***
GDP
(1.9) (2.0) (5.3) (2.0) (3.3) (17.2) (5.6) (5.3)
Trade openness 0.0 0.2** 0.1 0.3*** 0.5** 0.5*** 2 0.3*** 2 0.2**
(0.1) (0.0) (0.2) (0.0) (0.2) (0.1) (0.1) (0.1)
GDP per capita 10.9*** 0.4 16.7 10.3 9.8 18.8** 2.8 2 8.7
(3.8) (7.0) (14.1) (8.1) (15.8) (8.4) (11.1) (11.5)
Population 2 5.2* 2 7.7 2 45.5** 2 54.0*** 2 9.7 2 9.5 215.9 2 27.1
(2 3.0) (11.1) (17.8) (19.8) (8.5) (10.6) (10.7) (18.3)
N 826 765 301 262 283 266 242 224
adj. R2 0.92 0.94 0.94 0.94
Durbin-Watson 2.05 2.1 2.16 2.16
Instrument rank 45 36 38 32
Hansen’s J-statistic 36.282878 27.26285 29.65639 24.09166
Prob(J-statistic) 0.476997 0.503971 0.483348 0.456366
Table 5b. Time period effects of bank internationalisation (all countries except USA).
All countries minus USA 1980– 1989 1990– 1998 1999– 2007
Model 3
Model 3 OLS Model 3 GMM Model 3 OLS Model 3 GMM Model 3 OLS Model 3 GMM Model 3 OLS GMM
Intercept 2 0.6* 0.7 20.9 0.0

(0.3) (1.1) (0.9) (0.7)
Lagged DOI (1y) 0.8*** 0.5*** 0.5*** 20.0 0.6*** 0.4*** 0.5*** ..
(0.0) (0.0) (0.1) (0.0) (0.0) (0.0) (0.1) ..
FDI outflow 0.1* 0.1 2 0.9** 20.9*** 20.3 0.1* 0.1 ..
(0.1) (0.1) (0.4) (0.1) (0.3) (0.0) (0.1) ..
Real effective exchange 2 0.1* 20.1*** 2 0.1 20.1** 0.1 0.1 20.3*** ..
rate
(0.0) (0.0) (0.0) (0.0) (0.1) (0.0) (0.1) ..
Deposit money banks to 0.6*** 0.7*** 2 1.5 21.3*** 0.0 2 0.3*** 0.0 ..
total deposits
(0.2) (0.1) (1.0) (0.2) (0.5) (0.1) (0.4) ..
Bank deposits to GDP 2 3.6* 1.8 4.6 11.2*** 22.9 2 0.2 20.7** ..
(1.9) (1.2) (7.4) (1.6) (3.3) (3.0) (8.2) ..
Trade openness 0.0 0.1*** 0.1 0.0 0.4*** 0.5*** 0.3*** ..
(0.1) (0.0) (0.2) (0.0) (0.2) (0.0) (0.1) ..
GDP per capita 7.8 23.0 10.2 2 55.6*** 21.8 19.1*** 23.0 ..
(6.5) (4.7) (13.9) (12.2) (23.6) (7.3) (10.0) ..
Population 25.5 44.0** 152.6*** 466.6*** 115.3 2 122.0** 77.6 ..
(37.4) (17.7) (54.1) (30.4) (105.2) (61.9) (49.6) ..
N 693 638 256 223 232 215 205
adj. R2 0.92 0.92 0.93 0.92
Durbin-Watson 2.06 2.00 2.16 2.17
Instrument rank 39 30 32 ..
Business History
Hansen’s J-statistic 31.4702 20.5 26.6 ..

Prob(J-statistic) 0.442709 0.567498 0.32 ..
137
138
Table 5c. Time period effects of bank internationalisation (all countries except Japan).
All countries minus Japan 1980– 1989 1990– 1998 1999– 2007
Model 3 Model 3 Model 3 Model 3 Model 3 Model 3 Model 3 Model 3
OLS GMM OLS GMM OLS GMM OLS GMM
Intercept 2 0.1 1.7** 2 0.1 2 0.2

(0.4) (0.8) (0.5) (0.6)
Lagged DOI (1y) 0.8*** 0.6*** 20.6*** 0.1** 0.7*** 0.4*** 0.5*** ..
(0.0) (0.0) (0.1) (0.0) (0.0) (0.0) (0.1) ..
FDI outflow 0.1** 0.1* 20.6* 2 0.5*** 2 0.3 0.1** 0.1 ..
(0.1) (0.1) (0.4) (0.2) (0.2) (0.1) (0.1) ..
Real effective exchange rate 2 0.1** 20.1*** 0.0 0.1** 0.0 20.1* 2 0.3** ..
(0.0) (0.0) (0.0) (0.0) (0.1) (0.1) (0.1) ..
Deposit money banks to total deposits 0.3 20.1** 21.2 2 1.6*** 0.1 0.0 0.9 ..
(0.4) (0.0) (0.9) (0.3) (0.4) (0.2) (0.5) ..
Bank deposits to GDP 2 2.6 1.3 4.9 2 2.9 2 4.8 23.2 19.2*** ..
(2.4) (0.8) (6.8) (2.5) (3.8) (5.2) (5.9) ..
Trade openness 2 0.0 0.1*** 0.1 0.3*** 0.4** 0.3*** 2 0.3*** ..
(0.1) (0.0) (0.2) (0.0) (0.2) (0.1) (0.1) ..
GDP per capita 9.8** 21.2 16.8* 26.7*** 12.6 30.8*** 1.4 ..
(4.1) (1.9) (9.4) (6.8) (27.3) (3.6) (10.9) ..
Population 2 5.3 21.9 250.0*** 2 83.8*** 2 13.0* 215.8** 2 12.6 ..
(3.6) (4.7) (13.4) (10.1) (7.5) (7.8) (9.7) ..
N 712 657 261 227 240 224 211
adj. R2 0.94 0.94 0.95 0.92
Durbin-Watson 2.05 1.99 2.11 2.15
Instrument rank 39 31 34 ..
Hansen’s J-statistic 31.04678 25.9 25.2 ..
Prob(J-statistic) 0.463857 0.305833 0.506902 ..
Notes: Tables 5a, 5b, and 5c show the fixed-cross sectional effects panel data regressions of structural factors on the bank degree of internationalisation (DOI) for various samples. Each
model is based upon Model 3 from Table 3, and is estimated using OLS estimation, and a GMM estimation as in Arellano and Bond (1991). Standard errors in parentheses. Slope
estimators and standard errors reported in percentage points. Lagged DOI was added to correct for autocorrelation. All macroeconomic indicators expressed in current USD, unless
indicated differently. All data covering the 1980–2007 period (see Table 1 for individual bank coverage) unless stated differently, and except for the Swiss FDI data which was not
available prior to 1983. FDI outflow and Export of goods and services measured as percentages of GDP. Per capita GDP in current USD100,000. Population in hundred millions. Trade
openness (ratio of exports plus imports to GDP) as in Lane and Milesi-Ferretti, “Drivers of Financial Globaliation”. Real effective exchange rate is the nominal effective exchange rate
(relative to a basket of several foreign currencies) divided by a price deflator, indexed 2005 ¼ 100. Financial depth indicator (Bank deposits to GDP) as in Beck and Demirgüc -Kunt,
“Financial Institutions and Markets”. Relative bank size measure (ratio of deposit money bank assets to central bank plus deposit money bank assets) as in Beck, Demirgüc -Kunt and
Levine, “New Database on Structure”. Standard errors are heteroskedasticity consistent using White cross-section estimation. ***Significant at 1% level; **Significant at 5% level;
*Significant at 10% level. “..” means that GMM estimates could not be obtained because of limited number of observations (underidentification problem).
Business History
139
most recent years, this effect is likely to be driven by the US banks in the sample. A second
observation from Table 5b is that once excluding the US banks, ‘Population’ has a positive
impact on bank internationalisation, but this counterintuitive overall result is driven by the
1980 –1989 period. Hence, for the non-US banks in the sample a larger home market
seemed an advantage for internationalisation in the 1980s, whilst in the 1990s non-US
banks treated their home market became an interesting alternative to foreign markets. For
the US banks, on the other hand, the limited home market was a very strong driver for
internationalisation, but this effect is solely observed for the 1980s. Lastly, we note that in
Table 5b, ‘per capita GDP’ has no significant overall effect, but it associates very
negatively with bank internationalisation in the 1980s, and very positive in the 1990s. The
negative slope estimator is counterintuitive, but it seems to be driven by one particular
country, namely Japan.
In Table 5c, we again repeat the analysis presented in Table 5a, but this time we
exclude Japan. Again, dropping one country results in too few observations to conduct a
GMM analysis for the last time period. There is one result that stands out. When excluding
Japanese banks from the dataset, suddenly per capita GDP positively associates with bank
internationalisation for all time periods. We attribute this effect to the fact that the growth
and decline patterns of Japanese per capita GDP (unmatched steep growth in the 1980s,
and steady decline thereafter) are incomparable with the patterns of any of the other
countries in the sample. Therefore, variation in per capita GDP cannot explain bank
internationalisation in a similar manner as it can in other countries. We elaborate more on
this phenomenon in the case study analysis.
6. Three case studies

The statistical analysis in the preceding section suggests a mix of some country-specific
and time-specific effects that call for further analysis. In the current section we do so by
analysing the case studies of Bank of America and Sumitomo Bank, because their
internationalisation patterns largely coincide with the average pattern for their respective
home country. In addition, we analyse Deutsche Bank of which the internationalisation
pattern matches with the average of the other banks in the sample. We have chosen these
cases to better understand and interpret the results of the regressions. Accordingly, we will
show that especially the regulatory environment has been an important factor for
explaining the diverging patterns of internationalisation between US, Japanese and
German banks since the 1980s.
6.1 United States: Bank of America

US banks became very international after Second World War and especially since
1960s.72 This was due two main factors. After the war the US came forth as the main
financial and economic power in the world economy. And as world trade and capital flows
expanded, US banks followed their customers abroad. At the same time, US banks were
limited in their domestic expansion because of restrictions on geographic expansion
(McFadden Act 1927) and accepted activities of banks (Glass Steagall Act 1933).
Moreover some changes in US laws even encouraged and facilitated overseas banking. For
example Regulation Q and the Voluntary Foreign Credit Restraint Program restricted the
ability of US banks to service their overseas clients. To avoid the impact of these domestic
regulations they expanded in foreign markets, in particular to London to gain access to the
Eurodollar market.73 Because of these push and pull factors US banks’ overseas operations
and foreign lending increased substantially. Whereas before 1960s the foreign expansion
of most US banks was restricted to the financing of international trade, by setting up
branches in important financial centres, much of the growth of US banks abroad occurred
in the 1970s when they followed their customers to accommodate them abroad. They tried
to internalise existing bank –client relations before foreign competitor banks might replace
them.74 Except for branches, subsidiaries became an important organisational form in this
period.
The loan debt crisis of 1981 formed a turning point however. Hereafter
internationalisation of US banks decreased, as they refocused on the domestic market
again. Another reason for this turn was changing legislation within the US. This
development had already started in 1978, with a decision of the Supreme Court which led
to a gradual removal of interest rate ceilings among different states. Important was that
interstate banking gradually was permitted again, eventually leading to the adoption of the
federal Riegle-Neal Interstate Banking and Branching Efficiency Act in 1994, putting an
end to the McFadden Act of 1927.75
Since the 1980s, US banks diverged more in their strategies: some of them expanded
abroad again while others focused mainly on the home market, e.g. J.P. Morgan and
Citibank stayed active in foreign markets, while Bank of America turned to the home
market. Interestingly, after more deregulation in the late 1990s – most importantly the
Gramm-Leach-Bliley Act of 1999 after which banks were allowed to combine investment
and commercial banking activities – mergers between the largest US banks took place,
creating some enormous financial conglomerates. Thus J.P Morgan which had become a
worldwide investment bank merged with Chase, which had developed into a retail bank.
Citibank, which remained active in the international market, focused on worldwide
consumer banking, and added international investment banking activities with the merger
of Travelers.76
Thus whereas regulation formed an incentive to internationalise in the 1960s and
1970s, deregulation since the 1980s led to a refocus on the domestic market. Because
interstate banking had been forbidden for a long time, the market was still rather
fragmented giving ample opportunities for US banks to merge with, and acquire, other
banks after the restrictions were lifted. In other words, the domestic market was attractive
as the US banking system was still less consolidated compared to other countries. The
refocus of US banks on the domestic market is well reflected by the international strategy
of Bank of America since the 1980s. In 1981 Bank of America was the largest bank of the
US and the bank had a degree of internalisation of almost 51%, while in 1998 the DOI had
dropped to a mere 7%. The relative decline was a result of a refocus on the domestic
market, which led to domestic mergers and divesture of foreign assets.
The history of Bank of America has its roots in California.77 As the bank was not
allowed to branch out to other states due to legislation, it built a strong bank in the state
California. The impossibility to expand in the home market, pushed the bank to become
active abroad. The bank’s expansion drift shifted to the European market already in the
1950s. Compared to European banks the bank was large measured by assets (five times the
size of Credit Lyonnais or Deutsche Bank).78 During the 1960s and early 1970s the bank
built up a presence in the important financial centres in Western Europe by opening
branches. Since mid-1970s the bank also expanded to Latin America which witnessed
rapid economic growth. The bank acted mostly as agent, or underwriter of long-term
government debt or debt issued by companies.79
The relative decline of international activities was caused by a combination of the new
possibilities in the home market and foreign divestments. As with other banks the asset
seeking strategies in the 1960s and 1970s led to imbalances so that the operating expenses
were hard to control and foreign expansion had been too ambitious. The banks
international activities in this time could be described as ‘a hectic, disorganized expansion
overseas.’80 In the early 1980s problems came to the foreground with the loan debt crisis
of the developing countries to which the bank had lent substantially. The bank lost more
than 2 billion dollars in loan write-offs. In 1985 a restructuring program was announced in
which one of the three goals formulated was to cut back international activities and to
operate in selected countries rather than to desire to be present in many locations.81
Instead, the bank’s focus was put on retail and commercial banking in the home market.82
Thus, while bad loans were restructured and foreign branches were sold, the bank
expanded in the home market by buying thrifts, by which the bank expanded to seven other
states in 1990, which by then was allowed. To increase market share in the home market
further, it acquired Security Pacific, a Californian bank with a large presence in retail
banking, in 1991 after which it bought many additional banks and mortgages businesses.
Another important acquisition was that of Continental Bank in 1994, by which it expanded
its corporate banking activities in the Chicago area.83 After further deregulations of the
late 1990s, other large mergers took place between US banks among them the one between
Bank of America and Nationsbank in 1998. With this merger the bank obtained a
countrywide presence.84 The international presence of Bank of America had by then
diminished substantially, as can also be seen in Figure 2.
0.60
USA average
0.50
Bank of America
0.40
0.30
0.20
0.10
0.00
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Figure 2. Internationalisation pattern for Bank of America. The DOI for Bank of America over the
sample period (1980 – 2007) relative to the average DOI for all US banks in our sample. The DOI is
the unweighted average of foreign to total sales, foreign to total assets, and foreign to total
employment.
6.2 Japan: Sumitomo Bank

Probably the three most distinctive aspects that have jointly shaped the Japanese banking
industry for decades are the so-called ‘main bank system’, the shareholding interlockings,
and a thin managerial labour market.85 The Japanese main bank system is described as a
situation where firms have heavily relied on direct bank finance (instead of issuing stocks
or bonds) and where firms maintain close relationships with a particular bank.86 In
addition, the main banks have usually had shareholdings in the firms to which they lent out
money.87 By the end of the 1980s, the top-three Japanese banks (Nippon, Dai-Ichi, and
Sumitomo Bank) held about 50% of all shares of all large Japanese firms.88 As a
consequence both the monitoring and control functions are held by the financial
intermediary.89 Being so neatly ‘interwoven’ with the producing firms, Japanese banks
automatically became very sensitive to crises in the ‘real’ industries. In addition, the
Japanese main banks have often behaved as if they were residual risk-bearers.90 An often-
cited example is the bankruptcy of the Ataka trading company in 1977, and where
Sumitomo Bank (being Ataka’s main bank) bore some 59% of Ataka’s losses whilst only
having a loan share of about 15% at the time of default.91 Whilst Sumitomo Bank wrote off
some 106 billion Yen (and Kyowa Bank some 46 billion Yen), foreign investors hardly
lost anything.
After the Second World War, Japanese banks established themselves overseas.
Especially activities in the US, in particular California, increased as the Japanese banks
wanted to serve Japanese immigrants and trade. Many of them became large state-wide
retail banks due to acquisitions, by then serving mostly non-Japanese clients. As a result,
by the late 1980s almost half of the 10 largest banks in California were Japanese banks.92
In addition, Japanese banks were extremely dominant in the US during the 1980s.93 Strong
ties with their clients had been an important reason for international expansion of Japanese
banks. This was also reflected in the opening of branches in Germany, around the
industrial area of Dusseldorf where many Japanese firms had located.94 London was also
attractive for Japanese banks as the major financial city, followed from the late 1980s by
Frankfurt, for participation in growing capital market activities.95
The 1990s witnessed a withdrawal of Japanese banks from the international markets.
On the one hand this retreat can be traced back to the poor performing loans in the home
market. Probably much more important, but related, were the effects of the introduction of
the 1988 Basel Accord, the increase in tax rates in 1988, and the ‘Big Bang’ deregulation
of the Japanese financial system.96
From 1985 to 1989 Japan’s economy witnessed a period of extreme speculation when
land prices and share prices climbed sky high. The bubble burst in the early 1990s. The
collapse of the economy resulted in the bankruptcy of many borrowers, which led to high
asset-quality problems within banks. The Basel Accord of 1988 with its capital ratio
requirements was a last blow to the international growth of Japanese banks, as it turned
out that many Japanese banks did not meet the required bank’s capital ratios defined by
the Basel regulations.97 The Japanese Ministry of Finance allowed banks without foreign
offices to apply much lower security holdings in their bank capital.98 This encouraged
banks to concentrate on the domestic market. As the domestic market was rather
segmented, banks could still gain from consolidation which were observed around the
mid-1990s. Banks also felt pressure to increase profits from reforms in the late 1990s (the
Japanese ‘Big Bang’) which opened up and modernised the Japanese banking system.
Thus in 1998 legislation was introduced in Japan that resulted in a phased relaxation of
restrictions on the emergence of universal banks. Under the new regime the government
was more willing to encourage mergers and acquisitions between banks.99 Consequently
the largest Japanese banks started to merge, creating some large financial institutions.
Thus, the further decrease in DOI since the late 1990s was due to – comparable to the US
case – a relaxation of restrictions, enabling Japanese banks to become universal banks
and thus to grow in the domestic market.
Sumitomo bank was established in 1895 as part of the Sumitomo group of enterprises.
This type of conglomerate, also known as zaibatsu, owned majorities of shares in each
other. The bank is a good example of a Japanese bank that after the Second World War
became internationally active, but then in the 1990s focused relatively more on the
domestic market. After the war, Allied forces imposed antimonopoly laws, resulting in a
breaking up of zaibatsus into many smaller companies. Also Sumitomo Bank was not
allowed anymore to engage in cross-ownership of stock. Besides, it had to change its name
into Bank of Osaka. This strict rule was soon relaxed, however, resuming use of its name
and cross ownership.100 Internationally, in the 1960s Sumitomo Bank rehabilitated its
operations in California.101 Also, branches were opened in New York, London, and
Dusseldorf, close to the Japanese manufacturing clients that had established themselves in
this region, then in the 1980s followed by one in Frankfurt and Paris, and by acquisition of
European banks. In the 1980s the bank increased lending to non-Japanese clients and
foreign national governments. The US became an important market as well, with branches
in San Francisco, Chicago, Houston, Atlanta and Los Angeles. Apart from retail banking,
capital market activities also became important aspect of international banking especially
in the second half of the 1980s.
0.50
Japan average
0.45
SUMITOMO
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Figure 3. Internationalisation pattern for Sumitomo Bank. The DOI for Sumitomo Bank over the
sample period (1980 – 2007) relative to the average DOI for all Japanese banks in our sample. The
DOI is the unweighted average of foreign to total sales, foreign to total assets, and foreign to total
employment.
Late 1986, the Japanese Heiwa-Sogo Bank got into financial difficulty, and the
Japanese Ministry of Finance pursued Sumitomo Bank to absorb Heiwa-Sogo.102 Once the
merger was completed, Sumitomo Bank had absorbed the (local Japanese) branch network
in the metropolitan area, which explains part of the sudden drop in the DOI figure for the
1986 –87 years.
Also Sumitomo Bank was hit by the bubble bursting in the early 1990s. In October
1990 Isodo resigned as Chairman, taking responsibility for the bank’s involvement in
stock manipulation scandal around Itoman & Co, which was an Osaka based trading
company with longstanding ties with the Sumitomo group.103 Two years later, in January
1993, the bank wrote off 100 billion yen in bad loans, some of them related to the Itoman
affair. Still, the Japanese economy continued to stagnate. For the fiscal year ending March
1995, the bank showed a net loss of 335 billion yen, due to another writing off of 826
billion yen in bad loans. The following years the bank had to write off more bad loans.
Other reasons were the Asian crisis of 1998, which saddled the bank with more bad loans
from nations such as Indonesia and South Korea, and new disclosure rules to write off bad
loans as part of Japan’s Big Bang.104
Another result of the Big Bang was the bank’s increasing activities in investment
banking and asset management, and its withdrawal from international retail banking. Thus
in 1998 the bank sold Sumitomo Bank in California, mainly active in retail banking, to
Zions Bancop.105 Also, the bank decided to apply for public money, after the government
had passed legislation allowing regulators to inject public money into banks that had worn-
out their capital via writing off bad loans. The bank announced at the same time a
restructuring program by which staff would be cut, but also overseas branches would be
closed.106 The beginning of the twenty-first century, in 2001, Sumitomo Bank merged
with Sakura Bank, until 1990 known as Mitsui Bank. The merger was part of the broader
merger wave that hit the Japanese banking sector. The new bank was named Sumitomo
Mitsui Banking Corporation (SMBC). The increasing focus on the home market is
reflected in the very low DOI measured by then.
6.3 Germany: Deutsche Bank

After the Second World War German banks were active abroad via consortia, just as many
other European banks. International trade increased in the 1960s and 1970s due to
European integration among other things – the Treaty of Rome was signed in 1958. The
Eurodollar market developed and restriction of the movement of capital was increasingly
diminished.107 One reaction of European banks was to intensify cooperation between
banks and to open up branches together. An important motive was the expected high costs
of expanding abroad individually. Consortia turned out to be not so efficient though, and
soon various partners started activities in foreign market via own branches, especially in
the financial centres. Interestingly Luxembourg in particular became important for
German banks in the 1970s, inter alia to avoid German taxation. In the 1980s German
banks mainly wanted to gain a presence in the important financial centres worldwide.
Contrary to the US, there was no strict regulation for German banks. Because of this,
German banks are known for their active participation in manufacturing industry. They
granted loans and also participated in the share capital of these firms. These clients, which
were very important for the banks’ businesses, were followed abroad.
In the 1990s the main focus of German banks was the European market. One important
reason was the growing importance of Central and Eastern Europe as trade partners. In the
mid-1990s this region had become more important for German exports than the US. The
banks followed this trend to mainly three countries – Poland, the Czech Republic and
Hungary – where economic reform was most profound. At the end of the 1990s the German
banks slightly refocused on the domestic market. This refocus was due to diminishing
profitability in the international capital markets, combined with the expectation that a
consolidation wave would hit the rather fragmented German banking sector.
The still fragmented German banking sector in the 1990s was rather exceptional
compared to other countries. Deutsche Bank, Dresdner Bank and Commerzbank were the
three most important commercial banks in Germany. All three had a subsidiary network
covering the whole country. Other important players in the German banking landscape
were the cooperatives and the savings banks of which some (e.g. Westdeutsche
Landesbank) were also active in international markets. The Landesbanken in particular,
owned and often subsidised by the state, were important competitors for the commercial
banks, the main issue being that the state guaranteed the system of bank funding. Because
the banking sector remained rather stable between 1980 and 2000 the density was very
high, meaning that compared to other countries the market was fragmented. Only in 2000,
under pressure from the European Commission, was the system being examined carefully.
Deutsche Bank is a good example of a bank searching for a global presence over a
prolonged period. The internationalisation of the bank goes as far back as 1870 when it
first entered the US market.108 It functioned to finance German foreign trade with offices in
London, Shanghai and Yokohama. After the Second World War, when the bank had been
re-amalgamated, it first became active abroad via a consortium, as did many other German
banks.109 In 1963, Deutsche Bank announced together with Amsterdamsche Bank (The
0.80
0.70
0.60
0.50
0.40
0.30
0.20
Europe average
0.10
Deutsche Bank
0.00
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Figure 4. Internationalisation pattern for Deutsche Bank. The DOI for Deutsche Bank over the
sample period (1980 – 2007) relative to the average DOI for all European banks in our sample. The
DOI is the unweighted average of foreign to total sales, foreign to total assets, and foreign to total
employment.
Netherlands), Midland Bank (UK) and Societe General (Belgium) the cooperation named
European Advisory Council (EAC). In 1970 they decided to transform the informal
cooperation into a more institutionalised form by creating the European Banks’
International Company (EBIC).110 In the course of the 1970s EBIC consortia started to
vanish. It turned out to be difficult to ‘develop a joint policy’ and ‘it ignored the
competitive relations between the partner banks’.111 Deutsche Bank for example opened
up itself a branch in London, by which it started to compete with Midland Bank. Thus
since the mid-1970s Deutsche Bank reformulated its strategy and expanded its foreign
activities by itself.112
During the 1970s the bank built a worldwide network of branches, and continued to do
so in the 1980s. The US market played an important role in the bank’s international
activities. The goals which the bank formulated in 1986 reflected the strategic goal of
becoming a global bank active in many aspects of banking. Thus it was stated that the bank
had to increase its position in securities trading, further develop its commercial banking
activities, also in new high-growth international markets, and strengthen its position in
retail banking.113 An increase in the DOI of the bank after 1985 suggests that the bank
succeeded to accomplish its goals. Retail activities were mainly expanded in the European
market (Italy, Spain, and Belgium). Also, after 1989, Deutsche Bank started to expand in
Eastern and Central Europe mainly via new subsidiaries, whilst investment banking
activities were mainly extended by acquisitions. With the acquisition of Morgan Grenfell
in 1989, Deutsche Bank was one of the first European banks to buy an investment bank.
Almost 10 years later, in 1998, it bought the US Bankers Trust. Bankers Trust was the
eighth largest bank of the US and the largest acquisition by a foreign bank. This
acquisition explains the rather large increase in DOI between 1998 and 1999.
Deutsche Bank, being one of the most well-known and largest German banks, shows
an increasing DOI rate over the last decades, reflecting the general development of large
German banks which seemed to have increased their foreign presence over time, without a
clear refocus on the domestic market again, as was the case for US and Japanese banks.
7. Conclusion
In this article, we questioned whether banks from different regions converged to
internationalisation strategies in times of financial globalisation. Also, we wanted to detect
factors that might explain possible differences across regions and across time. Therefore, we
analysed some determinants of bank internationalisation for 46 of the world’s largest banks in
the period 1980–2007. We found that European banks become more internationally oriented
whereas American and Japanese banks, unexpectedly, refocused on the domestic market. The
evidence is based on a combination of quantitative and qualitative research, also known as the
mixed-method. This article shows the usefulness of taking such an approach.
Our empirical analysis shows that whilst on average the European banks in the
sample steadily continue to internationalise during the sample period, the US and Japanese
banks exhibit exactly the opposite pattern since the early 1980s. We tried to explain
this by means of some macroeconomic variables. Earlier research suggests that bank
internationalisation can be explained by variables such as the size of the home country, its
level of economic and financial development, and by exports and FDI to the rest of the
world. Overall our regression analyses confirm these earlier findings.
However, determinants of bank internationalisation can change over time, which
encouraged us to analyse time period effects. The analyses show that on average for all
countries in the sample, particularly in the 1980s, the home market formed an alternative for
internationalisation. Another outcome is that especially in the very recent period (1999 –
2007) the level of financial development of the home country is associated with
internationalisation. We suggest that this might be in line with the too-big-to-fail argument,
or that it has to do with the fact that financial services have become more important.
The notion that the US and Japanese banks showed a contrary development motivated
us to analyse these US and Japanese banks in more depth by excluding them (one country
at a time) from the analysis as a ‘dominant group’ analysis. When it comes to the US,
we find the striking result that the size of the home market has a totally different impact on
internationalisation as opposed to the other countries in the sample. Overall, namely,
we find that the larger the home country, the lower the degree of bank internationalisation.
This suggests that the home market could be a substitute for bank internationalisation.
Yet, once we excluded the US banks from the sample, the relationship appeared to be the
opposite (and statistically very significant). Hence, for all other countries in the sample, a
larger home market actually facilitates bank internationalisation. To understand the
dissimilar results for the US, we argue that we should include the case-study method in the
analysis. This method enables us to show that whereas regulation formed an incentive to
internationalise in the 1960s and 1970s, deregulation since the 1980s led to a refocus of
some major US banks on the domestic market again, after which consequently their DOI
decreased substantially.
It appears that for the Japanese banks, the internationalisation strongly associates with
the importance of deposit money banks, whilst for the other countries this impact is hardly
important. Also, when we excluded Japan and included the time context, it turns out that
GDP per capita, as a measure of economic development of a home country, is positively
associated with bank internationalisation. This is in contrast to the negative relationship
between GDP per capita and DOI in the overall regression (including all countries) for the
1980s. Again the case-based method helps us to interpret this counterintuitive finding. The
retreat from internationalisation of Japanese banks coincided with the Japanese
macroeconomic slowdown, but the focus on the home market increased even further
after deregulation since the mid-1990s.
From a methodological viewpoint this article shows that the mixed-method, combining
qualitative and quantitative approaches, allows us to give more comprehensive insights.
We argue that this results from the two approaches being complementary. Variables-based
research allows us to test assumptions, based on economic theory, for a larger set of banks.
Yet these statistical analyses show some country-specific and time-specific effects, which
demonstrate the boundaries to making generalisations. The case study method enables us to
interpret these specific effects, by offering the broader institutional context.
In this article, we related differences in bank internationalisation to macro-economic
variables and the institutional context. Therefore, it tends to assume that banks only react
(passively) to institutional changes, such as alterations in legislation. Regulation is not just
external and independent from banks’ strategies though, as individual banks and their
bankers are important agents that decide on goals and strategies influencing the context in
which they operate.114 Because of the chosen approach – combining quantitative analyses
and case studies based on existing literature – the article did not address these processes
and transformations within banks.115
Funding
This work was supported by The Netherlands Organisation for Scientific Research (NWO) [grant
number 275-53-010 (Veni granted to Gerarda Westerhuis)].
Notes
1. Jones, Banks as Multinationals.
2. Ibid., 10.
3. For example see Berger, Buch, DeLong and DeYoung, “Exporting Financial Institutions”;
Buch and DeLong, “Cross-border Bank Mergers”; Focarelli and Pozzolo, “The Patterns of
Cross-border Bank Mergers.”
4. Gorton and Metrick, “Securitized Banking.”
5. Mullineux and Murinde, “Globalization and Convergence,” 6.
6. Ibid., 11.
7. Larson, Schnyder, Westerhuis, and Wilson, “Strategic Responses.”
8. See Quinn, “The Correlates of Change”; Stulz, “The Limits of Financial Globalization.”
9. Guillén and Tschoegl, “At Last.”
10. Buckley, “Business History,” 320.
11. Jones and Khanna, “Bringing History (Back)”.
12. Buckley, “Business History,”319.
13. It is not our intention to recapitulate the extant literature on international business theory.
We refer to Buckley, “Business History,” for an excellent overview of theories on
multinational enterprises.
14. Howcroft, ul-Haq, and Carr, “An Examination.”
15. Zaheer, “Overcoming the Liability”; Ghemawat, “Distance Still Matters”.
16. Tschoegl, “International Retail Banking”; see also Guillén and Tschoegl, “At Last,” for the
internationalisation of Spanish retail banking in Latin America,
17. Grubel, “A Theory of Multinational Banking”; see also Gray and Gray, “The Multinational
Bank.”
18. See Williams, “Positive Theories” for an extensive description of the two.
19. Transaction costs as defined by Coase, “The Nature of the Firm.”
20. Gray and Gray, “The Multinational Bank”; Ball and Tschoegl, “The Decision to Establish”;
Boldt-Christmas, Jacobsen, and Tschoegl, “The International Expansion.”
21. See also Focarelli and Pozzolo, “Where do Banks Expand Abroad?”
22. Kindleberger, “International Banks,” 592.
23. See Choi, Tschoegl, and Yu, “Banks and the World’s Major,”; Choi, Park and Tschoegl,
“Banks and the World’s Major Financial Centres, 1990”; Choi, Park and Tschoegl, “Banks
and the World’s Major Banking Centres, 2000.”
24. See Laeven and Levine, “Bank Governance.”
25. See Dunning, “Trade, Location.”
26. Williams, “Positive Theories,” 79.
27. Ibid., 95.
28. See Cattani and Tschoegl, “An Evolutionary View,” for this view on the internationalisation
of Chase Manhattan Bank
29. Johanson and Vahlne, “The Internationalization Process.”
30. Ibid.
31. Forsgren, “The Concept of Learning.”
32. Johanson and Vahlne, “Commitment and Opportunity.”
33. Focarelli and Pozzolo, “The Patterns of Cross-border Bank Mergers.”
34. Berger, “International Comparisons”.
35. Lane and Milesi-Ferretti, “The Drivers.”
36. Tschoegl, “Who Owns.”
37. Westerhuis, Conquering the American Market.
38. Lane and Milesi-Ferretti, “The Drivers.”
39. See Westerhuis, Conquering the American Market, for Dutch banks entering the US; see Lu,
“The US Government Dual Banking,” for HSBC acquiring Marine Midland Banks Inc.
40. Jacobsen and Tschoegl, “The Norwegian Banks”; Engwall, Marquardt, Pedersen, and
Tschoegl, “Foreign Bank Penetration.”
41. Dunning, “Trade, Location.”
42. Tashakkori and Teddlie, Handbook of Mixed Methods; Creswell, Research Design; Johnson
and Onwuegbuzie, Mixed Methods Research.
43. King and Levine, “Finance and Growth.” They also proposed two more indicators of financial
development that measure to whom the financial sector is allocating credit.
44. See Chinn and Ito, “Capital Account.”

45. Dunning, Multinational Enterprises.
46. King and Levine, “Finance and Growth.”
47. King and Levine, “Finance, Entrepreneurship, Growth”; Levine, Loayza, and Beck,
“Financial Intermediation.”
48. Claessens, Klingebiel,and Schmukler, “Stock Market Development.”
49. Buckley, “Business History.”
50. See for example Westerhuis, Conquering American Market; Kobrak, Banking on Global Markets;
Cattani and Tschoegl, “An Evolutionary View”; Engwall et al., “Foreign Bank Penetration”;
Boldt-Christmas et al., “The International Expansion”; Jones, Banks as Multinationals.
51. Cf. De Haas and Van Lelyveld, “Internal Capital Markets.”
52. Levine, “Bank-Based or Market-Based.”
53. King and Levine, “Finance, Entrepreneurship, and Growth.”
54. See for example: Knack and Keefer, “Does Social Capital”; Rajan and Zingales, “Financial
Dependence and Growth”; Borensztein, Gregorio and Lee, “How does Foreign Direct
Investment”; Lane and Milesi-Ferretti, “The Drivers.”
55. IMF, “Global Financial Stability Report.”
56. Gall, Feldman, James, Holtfrerich, and Buschgen, The Deutsche Bank; Kobrak, Banking on
Global Markets.
57. Canals, Universal Banking, 88 – 89 and 254 –255.
58. Jones, Banks as Multinationals, 1
59. See Contractor, Kundu, and Hsu, “A Three-stage Theory”; Gomes and Ramaswamy, “An
Empirical Examination”; Sullivan, “Measuring the Degree.”
60. Hejazi and Santor, “Foreign Asset Risk Exposure”; Focarelli and Pozzolo, “Where do Banks
Expand Abroad?” Alternative measures of bank internationalization predominantly focus on the
number of foreign branches and offices (see for example Tschoegl, “Size, Growth, and
Transnationality”; Buch, Koch, and Koetter, “Should I Stay”). Though that data can be relatively
easily obtained, and is free of differences accounting practices, it has the major drawback that
counting offices irrespective of their size and contribution to the overall sales is a very crude
measure (see Brealey and Kaplanis, “The Determination Foreign Banking,” for a discussion).
61. We use bank in a broad sense to cover a wide range of financial institutions, including
commercial, investment and universal banks. The reason for restricting ourselves to five
banks per country is to avoid dominance by, e.g. the US and UK.
62. For some firms at the start of the sample, we could not obtain foreign employment figures, or
foreign sales. As a consequence, these firms exhibit unstable DOIs in the earliest one or two
years of the sample period.
63. Tschoegl, “Size, Growth, and Transnationality.”
64. Tschoegl, “Size, Growth, and Transnationality.”
65. The DOI variable has a strong autocorrelation of order 1. This autocorrelation requires a
different model specification. At higher lags this autocorrelation is absent.
66. Arellano and Bond, “Some Tests of Specification”. This method is based upon the generalised
method of moments (GMM) which is an econometric estimation method.
67. The presented OLS estimates are biased and inconsistent.
68. Cliff, “Dominance Statistics.”
69. Deposit savings are a cheap source of financing for banks.
70. In Table 3, it appeared that for Model 1 per capita GDP had a negative and statistically
significant correlation with bank internationalization (in the GMM estimates). Yet, in Model 3
(which was used as our reference for Tables 4 and 5) the relationship was statistically
insignificant for the GMM estimates.
71. See the findings of Lane and Milesi-Ferretti, “The Drivers.”
72. Based on Key, “The Internatonalisation of U.S. Banking,” in Benston, “US Banking.”
73. Williams, “Positive Theories.”
74. Casson, “Evolution of Multinational Banks.”
75. See for example Calomiris, US Bank Deregulation; Calomiris, “Banking Approaches”; see
Sherman, A Short History, for a summary.
76. Slager, Banking Across Borders.
77. http://about.bankofamerica.com/en-us/our-story/our-history-and-heritage.html
78. Battilossi and Cassis, European Banks.
79. Canals, Universal Banking, 254.

80. Ibid., 89
81. Ibid., 89.
82. Ibid., 89.
83. Ibid., 89; http://about.bankofamerica.com/en-us/our-story/our-history-and-heritage.html
84. http://about.bankofamerica.com/en-us/our-story/our-history-and-heritage.html
85. Berglöf and Perotti, “The Governance Structure.”
86. See for example Hodder and Tschoegl, “Some Aspects.”
87. Berglöf and Perotti, “The Governance Structure.”
88. Hodder and Tschoegl, “Some Aspects.”
89. Sheard, “The Main Bank System.”
90. Ibid.
91. Ibid.
92. Slager, Banking Across Borders, 385.
93. Grosse and Goldberg, “Foreign Bank Activity.”
94. Ibid., 387.
95. Ibid.
96. LeBel, “Asset Bubbles.”
97. Honda, “The Effects of Basle Accord.”
98. Ibid.
99. Drake, “Cost and Efficiency.”
100. http://www.referenceforbusiness.com/history2/75/Sumitomo-Mitsui-Banking-Corporation.
html
101. Ibid.
102. Hanazaki and Horiuchi, “A Review Japan’s Bank Crisis.”
103. http://www.referenceforbusiness.com/history2/75/Sumitomo-Mitsui-Banking-Corporation.
html
104. Ibid.
105. Ibid.
106. Ibid.
107. Benink, Financial Integration; Berger, DeYoung, Genay, and Udell, “Globalization of
Financial Institutions.”
108. Kobrak, Banking on Global Markets.
109. Gall et al., The Deutsche Bank, 741; Kobrak, Banking on Global Markets.
110. Zanden and Uittenbogaard, “Expansion, Internationalisation, and Concentration,”366 – 367.
111. Gall et al., The Deutsche Bank, 785.
112. Ibid., 747.
113. Slager, Banking Across Borders, 313.
114. See for example Kipping and Westerhuis, “The Managerialization of Banking.”
115. See for example Bátiz-Lazo and Wood, “Strategy, Competition and Diversification” for an
analysis of the influence of management styles on diversification strategies within bank markets.
Notes on contributors
Gerarda Westerhuis works as a researcher at the Department of History and Art History (Utrecht
University) and as a lecturer at the Department of Finance, Rotterdam School of Management (Erasmus
University). Recently, she started her new research project entitled “Unraveling the origins of a banking
crisis: changing perceptions of risk and managerial beliefs in Dutch banking, 1957–2007”. Her main
research interests are banking, financing, corporate governance, networks and financial elites.
Arjen Mulder is assistant professor of corporate finance at the Department of Finance, Rotterdam
School of Management, Erasmus University. His main research interests are corporate finance,
international finance, international business, and banking.
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ISSN: 0007-6791 (Print) 1743-7938 (Online) Journal homepage: https://www.tandfonline.com/loi/fbsh20

The determinants of bank internationalisation in

Arjen Mulder & Gerarda Westerhuis

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The determinants of bank internationalisation in times of financial

This article analyses the determinants of bank internationalisation, of the world’s

*Corresponding author. Email: amulder@rsm.nl

q 2015 Taylor & Francis

2. Why do banks internationalise?13

In addition to an analysis that links bank internationalisation to (financial)

4. Data and sources

Table 1. Sample overview.

France BNP 1980– 2007 27.6 30.5 47.7 39.6

5. Variables-based analysis: determinants of internationalisation

and services would have an impact on bank internationalisation, but it appeared to be

5.1 Regions: US, Europe and Japan

Intercept 2 0.5*** (0.2) 0.1*** (0.0) 2 0.4*** (0.1)

Bank deposits to GDP 2 3.7** (1.9) 0.5 (2.0)

Table 4. Country effects of bank internationalisation.

Intercept 20.4*** 2 0.6* 2 0.1

(0.0) (0.0) (0.0) (0.0) (0.0) (0.0)

All countries, all years 1980– 1989 1990–1998 1999– 2007

Intercept 2 0.4*** 1.4 2 0.2 0.7*

Intercept 2 0.6* 0.7 20.9 0.0

Hansen’s J-statistic 31.4702 20.5 26.6 ..

Intercept 2 0.1 1.7** 2 0.1 2 0.2

6. Three case studies

6.1 United States: Bank of America

6.2 Japan: Sumitomo Bank

6.3 Germany: Deutsche Bank

44. See Chinn and Ito, “Capital Account.”

79. Canals, Universal Banking, 254.

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Intercept 2 0.5* (0.2) 0.1* (0.0) 2 0.4*** (0.1)