Cross-Border Banking

Jonathan Eaton

NBER Working Paper No. 4686
Issued in March 1994
NBER Program(s):International Trade and Investment

The banking systems of some countries export intermediation services to the rest of the world, while many other countries are net exporters of deposits to banks abroad and net importers of loans from banks abroad. Banking center countries typically have lower inflation, deeper financial systems, earn less government revenue from seigniorage, and have lower reserve money relative to bank assets than nonbanking-center countries. This paper develops a stylized model of regulated bank intermediation to examine the role of national monetary policy in determining the international competitiveness of a national banking system. Monetary policy takes the form of controlling the supply of reserve money and imposing restrictions on banks that generate a demand for reserve money (reserve requirements). The international competitiveness of a banking system is enhanced by having a monetary authority who places greater weight on the interests of existing creditors relative to debtors in its constituency, and who has less need to raise revenue from seigniorage. With complete integration of deposit and loan markets the location of intermediation can be indeterminate. Countries that receive more deposits can generate a given amount of seigniorage with less inflation. Monetary authorities in countries that experience deposit outflows may be tempted to impose capital controls in order to maintain their seigniorage base. One implication of the analysis is that integration of monetary policies can facilitate financial integration by reducing the incentive to relocate deposits to avoid the inflation tax.

download in pdf format
   (394 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4686

Published: Financial Factors in Economic Stabilization and Growth, ed. Zvi Eckstein, Zvi Hercowitz and Leonard Lederman, (New York: Cambridge University Press), 1996.

Users who downloaded this paper also downloaded* these:
Bruno and Shin w19038 Capital Flows, Cross-Border Banking and Global Liquidity
Huizinga, Voget, and Wagner w18483 International Taxation and Cross-Border Banking
Dekle and Eaton w4781 Agglomeration and the Price of Land: Evidence from the Prefectures
Eaton and Tamura w4758 Bilateralism and Regionalism in Japanese and U.S. Trade and Direct Foreign Investment Patterns
Eaton and Kortum w4931 International Patenting and Technology Diffusion
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us