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Foreign and domestic bank participation in emerging markets: lessons from Mexico and Argentina

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  • B. Gerard Dages
  • Linda Goldberg
  • Daniel Kinney

Abstract

It is generally agreed that strong domestic financial systems play an important role in attaining overall economic development and stabilization. The role played by foreign banks in achieving this goal, however, is still controversial. This article brings new evidence to the debate over foreign participation by examining the lending patterns of domestic and foreign banks in Argentina and Mexico during the 1990s. The authors conclude that foreign banks in both countries typically have stronger and less volatile loan growth than their domestic counterparts. The corollary to this finding, however, is that bank health—not ownership per se—is the critical element in the growth, volatility, and cyclicality of bank credit. Still, diversity of ownership is found to contribute to greater credit stability in times of financial system turmoil and weakness.

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Bibliographic Info

Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.

Volume (Year): (2000)
Issue (Month): Sep ()
Pages: 17-36

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Handle: RePEc:fip:fednep:y:2000:i:sep:p:17-36:n:v.6no.3

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Keywords: Bank loans - Argentina ; Bank loans - Mexico ; Banks and banking; Foreign ; Argentina ; Mexico;

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  1. Linda S. Goldberg, 2001. "When is U.S. bank lending to emerging markets volatile?," Staff Reports 119, Federal Reserve Bank of New York.
  2. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
  3. Joe Peek & Eric S. Rosengren, 1996. "The International Transmission of Financial Shocks: The Case of Japan," Boston College Working Papers in Economics 357, Boston College Department of Economics.
  4. Eric S. Rosengren & Joe Peek, 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.
  5. Hancock, Diana & Wilcox, James A., 1998. "The "credit crunch" and the availability of credit to small business," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 983-1014, August.
  6. William C. Gruben & Jahyeong Koo & Robert R. Moore, 1999. "When does financial liberalization make banks risky? : an empirical examination of Argentina, Canada and Mexico," Center for Latin America Working Papers 0399, Federal Reserve Bank of Dallas.
  7. Diana Hancock and James A. Wilcox., 1998. "The "Credit Crunch" and the Availability of Credit to Small Business," Research Program in Finance Working Papers RPF-282, University of California at Berkeley.
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