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Foreign Banks' Entry and Departure: The Recent Brazilian Experience (1996-2006)

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  • Pedro Fachada
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    Abstract

    There is a broad literature documenting the recent trend towards a larger foreign banking presence in both mature and emerging markets. Less documented are the few situations where banking internationalization has contracted. Brazil is one such case. After a large-scale entry in the late 90s, foreign banks have retreated, being absorbed by their domestic competitors. This paper examines these opposite trends and associates de-internationalization mainly with lower relative profitability of foreign firms. Bank-level panel data investigates the determinants of earnings and costs according to ownership, providing evidence that greater foreign presence contributed to curb domestic banks’ costs, but not their profitability. This assessment is consistent with widespread evidence that internationalization forces local banks to operate more efficiently.

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    File URL: http://www.bcb.gov.br/pec/wps/ingl/wps164.pdf
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    Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 164.

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    Date of creation: Jun 2008
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    Handle: RePEc:bcb:wpaper:164

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    Web page: http://www.bcb.gov.br/?english

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    1. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, World Bank Group, vol. 13(2), pages 379-408, May.
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