Foreign bank activity in the United States: An analysis by country of origin

Abstract

The presence of foreign banks in the United States has grown dramatically in recent years. In particular, Japanese bank activity has grown rapidly and has raised concern from domestic bankers who have felt competitive pressure. This paper assesses the extent of the foreign bank presence in the United States and indicates its distribution by country of origin. The paper develops a formal model of determinants of the value of foreign bank assets and the number of foreign bank offices in the United States based on the country of origin of the investing banks and tests the model using recently available data from the Federal Reserve System. The empirical results indicate that foreign investment in the U.S., foreign trade with the U.S., and the size of the banking sector in the foreign country are positively correlated with that country's bank presence in the U.S. Less stable countries have greater foreign bank penetration, and geographic distance is somewhat positively correlated with bank presence.