Borderless Banking: Understanding International Bank Transfers

Every year, international bank transfers (IBTs) amount to correspondence of 10% of Norway’s GDP, making them a significant financial flow. Yet, surprisingly little is known about the patterns, drivers, and implications of these transactions. This project seeks to fill this gap by examining who is transferring money, where it is going, and how these flows are influenced by both individual behavior and broader economic changes. By leveraging newly available and highly detailed data, we aim to uncover the factors that shape IBTs, including the role of routine habits, the impact of external shocks, and the ways in which these transactions contribute to financial inequality. Additionally, we will investigate how IBTs intersect with both beneficial activities, like remittances, and harmful practices, such as tax evasion and other illicit financial flows. This research will provide policymakers and financial institutions with the knowledge and tools needed to enhance the positive impacts of IBTs while curbing their misuse. Beyond advancing academic understanding, the project will deliver actionable insights for building a more efficient, transparent, and equitable global financial system.

International bank transfers (IBTs) are a sizable form of financial flows and amount to nearly 10% of annual Norwegian GDP. Nevertheless, nearly nothing is known about what drives them. This project sheds much needed light on IBTs by examining who is making IBTs, where they are going, and how IBTs are formed by habit formation and respond to the evolving economy. In particular, we will investigate four main areas. The first considers the importance of habit formation in IBTs, by exploiting “round numbers” in bank transactions. Recognizing that aggregate economic decisions are a combination of routine, back of the envelope habits and more responsive choices aids in our understanding of how aggregate financial movements come about. Second, we examine the role remittances play in IBTs. The flow of these funds is considered a lifeline for developing countries yet because of lack of data not much is understood about them. By using a new and unique dataset, we will for the first time gain insight into how regulation, employment, and other factors feed into them. Third, we will examine how IBTs respond to a variety of external shocks, including variation in exchange rates and Brexit. In particular, our detailed data will allow us to see how these shocks are felt differently by high- and low-income Norwegians, providing a new insight into how financial markets can improve (or worsen) economic inequality. Finally, we will delve into how IBTs relate to tax evasion and other illicit financial flows, particularly among wealthy firms and individuals. Using information on leaked financial information such as the Panama Papers, we will be able to uncover a trove of information regarding these activities. Together, our research will provide the first nuanced understanding of these large financial flows. That in turn will enable both policy makers and banking institutions to implement policies that support the beneficial aspects of IBTs while curbing the abuses they support.