Trade-sanction Initiation and Host-country Banking-system Geographic Complexity: Cross-country Evidence

How does a country’s use of economic sanctions relate to the geographic composition of foreign-bank ownership at home? We combine foreign-bank ownership records, implemented sanction dyads, and macroeconomic data in an unbalanced panel of 2,127 country-years for 132 countries over 1991–2021. Bank geographic complexity is defined as the dispersion of ownership-source countries among foreign banks operating in the sanction-initiating country. Country and year fixed-effects estimates show that trade-sanction initiation, unlike the other five sanction categories, is negatively associated with subsequent ownership-source dispersion after adjustment for multiple testing. The pattern remains under alternative clustering, control for sanction-target breadth, sample-history requirements, outlier exclusion, and a longer lag. However, a significant lead, the absence of a detectable association after 2008, null dynamic-panel estimates, and weak-instrument-robust non-rejection for the external instruments prevent a causal interpretation. The evidence therefore identifies a period-sensitive conditional association between trade-sanction initiation and domestic banking-system composition, while demonstrating why banking surveillance should distinguish ownership reconfiguration from a causal sanction effect. JEL Codes: F36, F51, G21, G28