The mix of international banks' foreign claims: Determinants and implications

We analyze the cross-country determinants and financial stability implications of the mix of international banks' foreign claims. We distinguish between local claims - extended by host country affiliates - and cross-border claims - booked outside the receiving country. Using data on Italian, Spanish, and US banks' foreign claims, we find that the share of local claims is driven by restrictions on banking sector openness and by local scale economies/business opportunities. The impact of limits on property rights, entry requirements, start-up and informational costs is less robust. Finally, foreign claim volatility is lower in countries with a larger share of local claims.