Determinants of Bilateral Operations of Canadian and US Commercial Banks

Abstract

The size of parent bank has been found to be the chief determinant of commercial banks' foreign operations. A framework is developed for explaining this, as well as other aspects of the source, nature, host country, and subnational location of foreign-owned and foreign-affiliated bank offices. In the Canada-US context, the posited relationships are complicated by the two economies' proximity and intensive interaction, and by regulatory changes within and between the countries. The paper refers to published data and personal interviews to note the influence that proximity, ultimate ownership, and market segmentation have on banks' decisions to engage in correspondent relationships versus agencies, branches, or subsidiaries across the border. From the interviews and by using the hypothesized framework, the author also explores relationships between existing bank strengths and changes resulting from the bilateral Free Trade Agreement.