Size matters in banking. In this paper, we explore whether shocks originating at large banks affect the probability of distress of smaller banks and thus the stability of the banking system. Our analysis proceeds in two steps. In a first step, we follow Gabaix (2008a) and construct a measure of...

The global financial crisis has brought to an end a rather unprecedented period of banks’ international expansion. We analyze the effects of the crisis on international banking. Using a detailed dataset on the international assets of all German banks with foreign affiliates for the years...

During the last years, gravity equations have leapt from the trade literature over into the literature on financial markets. Martin and Rey (2004) were the first to provide a theoretical model for cross-border asset trade, yielding a structural gravity equation that could be tested empirically....

The theory of relationship lending is based on the idea that close ties between borrowers and banks may be economically beneficial. Information asymmetries on the part of the bank introduce adverse selection and moral hazard problems into the lending process and may lead to lengthy decision...

This paper looks at the interrelationship between trade in goods and asset holdings, as brought forward by some contributions to the empirical literature in international economics. These contributions argue that single-equation gravity models suffer from an endogeneity bias, culminating in a...

Over the past decades, banks have significantly increased their cross-border asset positions. The ongoing crisis on international financial markets has raised the question whether this increase in cross-border activities has allowed banks to diversify risks and to what extent it has increased...