Financial Globalization Between State Coercion and Commitment

This dissertation advances research on the role of states in shaping the global financial network. The relationship between states and financial globalization is complex and multifaceted. States employ various economic tools, such as secondary sanctions, anti-money laundering (AML), and counter-terrorist financing (CFT) regulations, to enlist financial institutions in their coercive campaigns. However, they also enter into international treaties and make commitments to safeguard investor interests to attract foreign banks. How financial institutions respond to state coercion and commitment, as well as the extent to which states shape the growth and trajectory of the global financial network, remains uncertain. The objective of my dissertation is to address these questions. The first chapter of the dissertation examines the strategies employed by Global Systemically Important Banks (G-SIBs) to navigate financial sanctions and related AML/CFT regulations. It reveals that G-SIBs adopting the "seeking-local-opportunities" model tend to strategically circumvent the demands of the state, while banks following the "follow-your-customers" model are more likely to comply with state requirements. The second chapter investigates the phenomenon of de-risking among multinational banks in response to financial sanctions. It establishes a strong and positive correlation between de-risking and a bank’s organizational and geographical complexity. This suggests that financial sanctions can prompt globally expansive banks to reduce their international business activities, while smaller and medium-sized regional banks seize the opportunity to expand. The third chapter introduces the concept of the "economic signaling effect" to explain how international treaties attract foreign banks into participating countries. Using a Difference-in-Differences estimator, it demonstrates that signing bilateral investment treaties or free trade agreements significantly increases the number of foreign banks from signatory countries. This increase ranges from 20% to 75%, varying based on the type of treaties and the level of economic exchanges between the participating countries. As part of this dissertation, an original dataset is created to track the ownership changes of 5,281 banks belonging to 465 multinational banking groups between 1995 and 2020. This dataset is the most comprehensive compilation of the global banking network to date, encompassing nearly three times more foreign banks than existing datasets.