This paper analyses the nature of the increasing regionalization process in global banking.
Despite the large decline in aggregate cross-border banking lending volumes, some parts
of the global banking network are currently more interlinked regionally than before the
Global Financial Crisis. After developing a simple theoretical model capturing banks'
internationalization decisions, our estimation shows that this regionalization trend is
present even after controlling for traditional gravitational variables (e.g. distance,
language, legal system, etc.), especially among lenders in EMs and non-core banking
systems, such as Australia, Canada, Hong Kong, and Singapore. Moreover, this
regionalization trend was present before the GFC, but it has increased since then, and it
seems to be associated with regulatory variables and the opportunities created by the
retrenchment of several European lenders.
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