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Global banks, local crises: bad news from Argentina

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Author Info
Marco Del Negro
Stephen Kay

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Abstract

Banking crises have been a recurrent phenomenon in Latin America over the past few decades. Some have argued that the internationalization of the banking sector has ushered in a new era: what used to be systemic risk from the perspective of local banks with undiversified portfolios might no longer be systemic from the standpoint of large international banks. ; Argentina's experience shows that the presence of international banks was not enough to prevent local banking crises and sizable losses to depositors. The "bad news" from Argentina, this article argues, is that depositors in emerging markets may not reap the full benefits of international portfolio diversification because international banks have limited liability, at least under some circumstances-for instance, when the local government heavily intervenes in the banking system. The authors emphasize that while the limited-liability feature of international banks may seem bad ex post-and, of course, it is from the perspective of Argentine depositors-this feature may well be desirable, perhaps even necessary, ex ante. ; The article first presents evidence of the globalization of the banking sector in Latin America and the dramatic increase of the phenomenon in the late nineties. After reviewing the literature on the pros and cons of international banks in emerging markets, the authors focus on the legal issues behind the limited-liability feature. The authors examine the new evidence that Argentina's recent experiences provide and conclude by analyzing the pros and cons of the limited-liability feature.

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Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

Volume (Year): (2002)
Issue (Month): Q3 ()
Pages: 89-106
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Handle: RePEc:fip:fedaer:y:2002:i:q3:p:89-106:n:v.87no.3

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Related research
Keywords: Argentina ; Banks and banking ; Banks and banking; International;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Enrica Detragiache & Asli Demirgüç-Kunt, 1997. "The Determinants of Banking Crises - Evidence from Developing and Developed Countries," IMF Working Papers 97/106, International Monetary Fund.
  2. Jennifer S. Crystal & B. Gerard Dages & Linda S. Goldberg, 2001. "Does foreign ownership contribute to sounder banks in emerging markets? the Latin American experience," Staff Reports 137, Federal Reserve Bank of New York. [Downloadable!]
  3. B. Gerard Dages & Linda Goldberg & Daniel Kinney, 2000. "Foreign and domestic bank participation in emerging markets: lessons from Mexico and Argentina," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 17-36. [Downloadable!]
    Other versions:
  4. Claessens, Stijn & Glaessner, Tom, 1998. "The internationalization of financial services in Asia," Policy Research Working Paper Series 1911, The World Bank. [Downloadable!]
  5. Clarke, George & Cull, Robert & Martinez Peria, Maria Soledad & Sanchez, Susana M., 2001. "Foreign bank entry - experience, implications for developing countries, and agenda for further research," Policy Research Working Paper Series 2698, The World Bank. [Downloadable!]
  6. Linda S. Goldberg, 2001. "When Is U.S. Bank Lending to Emerging Markets Volatile?," NBER Working Papers 8209, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Martinez Peria, Maria Soledad & Schmukler, Sergio L., 1999. "Do depositors punish banks for"bad"behavior? : market discipline in Argentina, Chile, and Mexico," Policy Research Working Paper Series 2058, The World Bank. [Downloadable!]
  8. Jackson, William III & Eisenbeis, Robert A., 1997. "Geographic integration of bank deposit markets and restrictions on interstate banking: A cointegration approach," Journal of Economics and Business, Elsevier, vol. 49(4), pages 335-346. [Downloadable!] (restricted)
  9. Allen N. Berger & Leora F. Klapper & Gegory F. Udell, 2001. "The ability of banks to lend to informationally opaque small businesses," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 241-261.
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  10. Hali J. Edison & Ross Levine & Luca Antonio Ricci & Torsten Sløk, 2002. "International Financial Integration and Economic Growth," IMF Working Papers 02/145, International Monetary Fund. [Downloadable!]
    Other versions:
  11. Larry D. Wall, 1993. "Too-big-to-fail after FDICIA," Economic Review, Federal Reserve Bank of Atlanta, issue Jan, pages 1-14.
  12. Albert S. Kyle, 2001. "Contagion as a Wealth Effect," Journal of Finance, American Finance Association, vol. 56(4), pages 1401-1440, 08. [Downloadable!] (restricted)
  13. Levine, Ross, 2001. "International Financial Liberalization and Economic Growth," Review of International Economics, Blackwell Publishing, vol. 9(4), pages 688-702, November. [Downloadable!] (restricted)
  14. Caprio, Gerard, Jr. & Honohan, Patrick, 1999. "Beyond capital ideals : restoring banking stability," Policy Research Working Paper Series 2235, The World Bank. [Downloadable!]
  15. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, Oxford University Press, vol. 13(2), pages 379-408, May.
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  16. Demirguc-Kunt, Asl' & Kane, Edward J., 2001. "Depositinsurance around the globe : where does it work?," Policy Research Working Paper Series 2679, The World Bank. [Downloadable!]
    Other versions:
  17. Maria Soledad Martinez Peria, 2001. "Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises," Journal of Finance, American Finance Association, vol. 56(3), pages 1029-1051, 06. [Downloadable!] (restricted)
  18. Joe Peek & Eric S. Rosengren, 2000. "Collateral Damage: Effects of the Japanese Bank Crisis on Real Activity in the United States," American Economic Review, American Economic Association, vol. 90(1), pages 30-45, March. [Downloadable!] (restricted)
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