European Central Bank

This paper provides the \u85rst empirical evidence that bank regulation and supervision is associated with cross-border spillover e¤ects through the lending activities of large multinational banks. We analyze business lending by 155 banks to 9,655 \u85rms in 1,976 di¤erent localities across 16 countries. We \u85nd that more competition-friendly regula-tion, tighter restrictions on bank activities, and higher minimum capital requirements in domestic markets are associated with higher business lending to informationally opaque rms abroad. The e¤ects are stronger when banks are less e ¢ ciently supervised at home, and are observed to exist independently from the impact of host-country regulation. JEL classi\u85cation: G21, G28, G32