Location choice of foreign banks in the United States

Abstract

Foreign banks expanded rapidly in the United States during the 1980s and now play a significant role in U.S. banking. The amount and type of foreign bank activity varies greatly by state, with New York and California being by far the most important. This paper examines the determinants of foreign banking activity by state and analyzes the effects of state laws on foreign bank entry and growth. The empirical results indicate that foreign bank presence, as measured by assets or offices, is drawn to states with large bank market sizes and fewer restrictions to entry. These results hold for total foreign bank presence as well as for separate measures of foreign bank agencies, branches, and subsidiaries. The amount of foreign direct investment in the state is also significant for attracting foreign bank assets overall and foreign bank branch assets in particular.