Few large with many small : banks size distribution and cross-border financial linkages

Abstract

We estimate the effect of the distribution of banks by asset size on a country’s propensity to engage in cross-border banking. Countries where the distribution of banks by asset size is more skewed to the right (with few large and many small banks) lend more abroad and are recipients of more funds from foreign banks. This is consistent with the fact that large banks, with easier access to the international financial markets, act as a hub for smaller banks and at the same time stand out as safer too-big-to fail counterparts for foreign partners.