Information or Regulation : What Is Driving the International Activities of Commercial Banks ?

Information costs and regulatory barriers are the main distinguishing features of international financial markets as compared to national financial markets. This paper presents a simple model of the impact of these factors on banks’ cross-border activities and provides empirical evidence. Our dataset allows us to capture both the times-series and the cross-section dimension of information costs and changes in regulations, in particular, for intra-EU asset holdings. While EU membership per se seems to have had a negative impact on cross-border banking activities, the adoption of the Single Market clearly had a positive impact. While regulations and information costs are important for all reporting countries, their relative importance differs between countries.