This paper shows that countries with weak banking system and fiscal institutions, should benefit from the presence of foreign banks, which can constitute a commitment and transparency device. Foreign banks can also reduce the probability of self-fulfilling speculative attacks. A strong presence of foreign banks can make a currency peg feasible in the first place by rendering it more resistant to speculative attacks. The European experience is instructive in this respect. In all the 10 countries from Central and Eastern Europe (CEEC) that will join the EU in 2004/7 the banking system is now dominated by foreign banks.
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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number
CESifo Working Paper No. 998.
Length: Date of creation: 2003 Date of revision: Handle: RePEc:ces:ceswps:_998
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Find related papers by JEL classification: E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
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