Today, Commonwealth Bank of Australia (ASX: CBA) shares reached a new all-time high of $186.44.

At the time of writing, Commonwealth Bank is changing hands for $186.01. 

The popular ASX 200 banking stock is up 21% this year, defying analyst forecasts of being overvalued. 

Earlier this year CBA became the first ASX stock to reach a market capitalisation of $300 billion, and now comprises around 12% of the S&P/ASX 200 Index (ASX: XJO).

A preference for the banking sector

It's no secret that Australian investors love banking stocks. The big four banks are a staple investment in many investors' portfolios. 

Recently, the big four banks have rallied strongly, stretching their valuations.

The majority of brokers and active fund managers have placed either neutral or underperform ratings on all four banks. 

In an 18 June research note, Macquarie affirmed its price target of $27.50 on ANZ Group Holdings Ltd (ASX: ANZ) and a neutral rating. National Australia Bank Ltd (ASX: NAB) was also given a neutral rating, alongside a price target of $35. In the case of Westpac Banking Corp (ASX: WBC), Macquarie expects the bank to underperform and has placed a price target of $27.50 on the stock. Macquarie is the most negative on CBA shares, with an underperform rating and price target of $105. 

In an earlier research note, Macquarie also forecast dividend cuts to be on the horizon for every big four bank except CBA. 

The broker wrote:

While banks can continue to muddle through and kick the can down the road for a little longer as they consume their remaining surplus capital, we believe they will ultimately need to cut their dividends. We forecast dividend cuts for ANZ, NAB, and WBC.

With a strong preference for reliable passive income, this has tipped CBA shares as the favourite ASX banking stock in many investors' eyes, despite its lofty valuation. 

Home bias

By sticking with ASX banking stocks despite their sky-high valuations, Australian investors show a high level of 'home bias'. 

Home bias describes the tendency for investors to invest in companies in their local market, despite the diversification benefits of investing internationally. Understandably, investors prefer companies they are most familiar with (and use in their everyday lives). However, in the case of the ASX 200 banking sector, this bias could come at a huge cost.

Time to consider JP Morgan?

To mitigate potentially poor forward returns, it may be time for Australian investors to consider international alternatives. 

One banking stock that comes to mind is US-listed JP Morgan Chase & Co (NYSE: JPM). 

JP Morgan is widely considered to be the highest-quality banking stock in the world. CBA trades at more than double the price-to-earnings multiple of JP Morgan (33 compared to 14) while having a lower return on equity (13% vs. 17%). 

Their dividend yields are also comparable, with CBA currently offering a yield of 2.5% compared to 2.0% for JP Morgan.

However, the disadvantages of investing in international banking shares should be acknowledged. These include the lack of franking credits and currency risk, which may deter some investors.