Consistent with theory, we find that higher cross-border externalities between two countries increases both the likelihood of cooperation and the intensity. Distinguishing
between different dimensions, we find that it is all three – cross-border externalities through bank ownership links, spill-over effects through financial markets and linkages within a currency union – that increase the probability and intensity
of cooperation. We also find that higher heterogeneity between countries decreases the likelihood and intensity of cooperation, again consistent with theory, though the economic effect of heterogeneity is less prominent than that of externalities. In summary,
economics matters! Countries are not only driven by politics and history when agreeing to cooperate among regulators, but also by the net benefits of doing so.