We use the near-collapse of the Norwegian banking system during the period 1988–1991 to measure the impact of bank distress announcements on the stock prices of firms maintaining a relationship with a distressed bank. Although banks experienced large and permanent downward revisions in their equity value during the event period, firms maintaining relationships with these banks faced only small and temporary changes, on average, in stock price. Firms with access to unused liquid bank funds and firms that issued equity just prior to the crisis experience relatively high abnormal returns. Overall, the aggregate impact of bank distress appears small.

We model two dimensions of bank globalization – bank nationality (a bank from the firm’s host nation, its home nation, or a third nation) and bank reach (a global, regional, or local bank) using a two-stage nested multinomial logit model. Our data set includes over 2000 foreign affiliates of multinational corporations operating in 20 European nations and over 250 banks that serve them. We find that these firms frequently use host nation banks for cash management services, and that bank reach may be strongly influenced by this choice of bank nationality. Our results suggest limits to the degree of future bank globalization.