Integrating with Their Feet: Cross-Border Lending at the German-Austrian Border

Fidrmuc, Jarko and Hainz, Christa (August 2008): Integrating with Their Feet: Cross-Border Lending at the German-Austrian Border. SFB/TR 15 Discussion Paper No. 248

Abstract

The current economic policy discussion on financial integration in the European Union concentrates on cross-border mergers. We study the impact of cross-border lending in a theoretical model where banks acquire either hard or soft information on borrowing firms and predict that the closer firms are to the border the more likely banks are to offer them cross-border loans. This hypothesis is confirmed in the ifo Business Climate Survey that reports the perceptions of German firms on banks lending behavior between 2003 and 2006. In contrast to the policy of harmonization, differences in bank regulations may provide incentives for cross-border lending. Thus, we show that financial integration may take place from the bottom up.

• Item Type: Paper
• Keywords: Financial Integration, SMEs, Banking Supervision, Business Surveys, Threshold Analysis
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B5 - Weltwirtschaftliche Integration und die neue Firmenorganisation; Economics; Economics > Chairs > Seminar for Comparative Economics
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: G18, G21, C25
• Language: English