A theoretical model of bank’s motives for becoming a multinational bank and conditions for its lending abroad substituting or supplementing its domestic loan business

Many empirical studies have examined the motivation for doing business abroad by the multinational corporation (hence MNC). The theory of the MNC received less attention. Even less has been published on the theory of the multinational bank (hence MB). This paper fills the gap. It analyzes the motives and adds a particular perspective: A model driven by supplementation and substitution of business as motivation. While these two elements by themselves are not new to economic theory, their application to the multination bank, as is done in this paper, offers a useful new perspective. While many other studies have concentrated on risk reduction as the motive for asset diversification by the MB, this paper takes a different approach. Specifically, this paper presents a theoretical framework that shows that the conditions for going abroad to enhance the bank’s domestic business (supplementation motive) are different from those that motivate the bank to substitute international business for domestic business (substitution motive). The model provides analytical insights into the behavior of the international bank that can interest scholars and bank regulators. The model can also serve as a basis for future related Multinational Corporate research in general, as well as for other bank specific studies.