Foreign Bank Entry and Business Volatility: Evidence from U.S. States and Other Countries
AbstractThe first-order effects of relaxed bank entry restrictions have been favorable, both within the U.S. and across countries. Internationally, the benefits of foreign entry seem to depend on the level of development, but at least for developing nations entrants are more efficient than incumbent banks and the stiffer competition seems to improve overall bank efficiency. In contrast to these first-order effects, the stability implications of increased entry are less obvious. This paper investigates whether greater integration resulting from foreign bank entry has been associated with more or less business cycle volatility. We approach the topic with mix of theory and evidence from both the U.S. states and countries. While theoretical effects are mixed, the empirical effect of relaxation of restrictions of cross-state banking has been to stabilize state-level fluctuations in the U.S. Applying a related set of tests to a panel of about 100 countries, however, we find no evidence that expansion of foreign banking has reduced business fluctuations. If anything, the evidence points tentatively in the other direction.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 229.
Date of creation: Oct 2003
Date of revision:
Other versions of this item:
- Donald P. Morgan & Philip E. Strahan, 2004. "Foreign Bank Entry and Business Volatility: Evidence from U.S. States and Other Countries," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Antonio Ahumada & J. Rodrigo Fuentes & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking Market Structure and Monetary Policy, edition 1, volume 7, chapter 8, pages 241-270 Central Bank of Chile.
- Donald Morgan & Philip Strahan, 2003. "Foreign Bank Entry and Business Volatility: Evidence from U.S. States and Other Countries," NBER Working Papers 9710, National Bureau of Economic Research, Inc.
- G2 - Financial Economics - - Financial Institutions and Services
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-10-20 (All new papers)
- NEP-COM-2003-10-20 (Industrial Competition)
- NEP-MFD-2003-10-20 (Microfinance)
- NEP-RMG-2003-10-20 (Risk Management)
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.:
- Holmström, Bengt & Tirole, Jean, 1994.
"Financial Intermediation, Loanable Funds and the Real Sector,"
IDEI Working Papers
40, Institut d'Économie Industrielle (IDEI), Toulouse.
- Holmstrom, Bengt & Tirole, Jean, 1997. "Financial Intermediation, Loanable Funds, and the Real Sector," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 663-91, August.
- Bengt Holmstrom & Jean Tirole, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," Working papers 95-1, Massachusetts Institute of Technology (MIT), Department of Economics.
- Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
- Piketty, Thomas & Banerjee, Abhijit & Aghion, Philippe, 1999.
"Dualism and Macroeconomic Volatility,"
4554124, Harvard University Department of Economics.
- Kane, Edward J, 1996. "De Jure Interstate Banking: Why Only Now?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 141-61, May.
- Denizer, Cevdet & Iyigun, Murat F. & Owen, Ann L., 2000.
"Finance and macroeconomic volatility,"
Policy Research Working Paper Series
2487, The World Bank.
- Cevdet Denizer & Murat Iyigun & Ann Owen, 2000. "Finance and Macroeconomic Volatility," Macroeconomics 0004015, EconWPA.
- Cevdet Denizer & Murat F. Lyigun & Ann L. Owen, 2000. "Finance and macroeconomic volatility," International Finance Discussion Papers 670, Board of Governors of the Federal Reserve System (U.S.).
- Todd E. Clark & Eric van Wincoop, 1999.
"Borders and business cycles,"
Research Working Paper
99-07, Federal Reserve Bank of Kansas City.
- Randall S. Kroszner & Philip E. Strahan, 1999. "What Drives Deregulation? Economics And Politics Of The Relaxation Of Bank Branching Restrictions," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1437-1467, November.
- Jayaratne, Jith & Strahan, Philip E, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 639-70, August.
- Adam B. Ashcraft, 2001.
"New evidence on the lending channel,"
136, Federal Reserve Bank of New York.
- 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.
- Berger, Allen N. & Demsetz, Rebecca S. & Strahan, Philip E., 1999.
"The consolidation of the financial services industry: Causes, consequences, and implications for the future,"
Journal of Banking & Finance,
Elsevier, vol. 23(2-4), pages 135-194, February.
- Allen N. Berger & Rebecca S. Demsetz & Philip E. Strahan, 1998. "The consolidation of the financial services industry: causes, consequences, and implications for the future," Finance and Economics Discussion Series 1998-46, Board of Governors of the Federal Reserve System (U.S.).
- Ricardo Caballero & Arvind Krishnamurthy, 2000.
"International and Domestic Collateral Constraints in a Model of Emerging Market Crises,"
NBER Working Papers
7971, National Bureau of Economic Research, Inc.
- Caballero, Ricardo J. & Krishnamurthy, Arvind, 2001. "International and domestic collateral constraints in a model of emerging market crises," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 513-548, December.
- Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
- Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
- Fotios Pasiouras & Chrysovalantis Gaganis & Constantin Zopounidis, 2006. "The impact of bank regulations, supervision, market structure, and bank characteristics on individual bank ratings: A cross-country analysis," Review of Quantitative Finance and Accounting, Springer, vol. 27(4), pages 403-438, December.
- Lamin Leigh & Richard Podpiera, 2006. "The Rise of Foreign Investment in China's Banks: Taking Stock," IMF Working Papers 06/292, International Monetary Fund.
- Ignacio Briones & André Villela, 2006. "European Bank Penetration During The First Wave Of Globalization: Lessons From Brazil And Chile, 1878/1913," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 23, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- Christian E. Weller & Ghazal Zulfiqar, 2013. "Financial Market Diversity and Macroeconomic Stability," Working Papers wp332, Political Economy Research Institute, University of Massachusetts at Amherst.
- De Haas, Ralph & van Lelyveld, Iman, 2009.
"Internal Capital Markets and Lending by Multinational Bank Subsidiaries,"
13164, University Library of Munich, Germany.
- de Haas, Ralph & van Lelyveld, Iman, 2010. "Internal capital markets and lending by multinational bank subsidiaries," Journal of Financial Intermediation, Elsevier, vol. 19(1), pages 1-25, January.
- Ralph De Haas & Iman Van Lelyveld, 2008. "Internal capital markets and lending by multinational bank subsidiaries," Working Papers 105, European Bank for Reconstruction and Development, Office of the Chief Economist.
- Ralph de Haas & Iman van Lelyveld, 2006. "Internal Capital Markets and Lending by Multinational Bank Subsidiaries," DNB Working Papers 101, Netherlands Central Bank, Research Department.
- Meriem Haouat & Diego N. Moccero & Ramiro Sosa Navarro, 2012.
"Foreign Banks and Credit Volatility: The Case of Latin American Countries,"
Review of International Economics,
Wiley Blackwell, vol. 20(5), pages 1017-1033, November.
- Haouat, Meriem & Moccero, Diego Nicolas & Sosa Navarro, Ramiro, 2010. "Foreign Banks and Credit Volatility: The Case of Latin American Countries," MPRA Paper 22991, University Library of Munich, Germany.
- Meriem Haouat & Diego Nicolas Moccero & Ramiro Sosa Navarro, 2010. "Foreign Banks and Credit Volatility: The Case of Latin American Countries," Working Paper Series wp2010-52, World Institute for Development Economic Research (UNU-WIDER).
- Wu, Ji & Luca, Alina C. & Jeon, Bang Nam, 2011. "Foreign bank penetration and the lending channel in emerging economies: Evidence from bank-level panel data," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 1128-1156, October.
- Xue, Minggao & Cheng, Wen, 2013. "National culture, market condition and market share of foreign bank," Economic Modelling, Elsevier, vol. 33(C), pages 991-997.
- Gulamhussen, M. A. & Piheiro, Carlos & Pozzolo, Alberto Franco, 2011.
"Do multinational banks create or destroy economic value?,"
Economics & Statistics Discussion Papers
esdp11057, University of Molise, Dept. EGSeI.
- Mohamed Azzim Gulamhussen & Carlos Pinheiro & Alberto Franco Pozzolo, 2010. "Do multinational banks create or destroy economic value?," Mo.Fi.R. Working Papers 36, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
- Fotios Pasiouras & Chrysovalantis Gaganis & Michael Doumpos, 2007. "A multicriteria discrimination approach for the credit rating of Asian banks," Annals of Finance, Springer, vol. 3(3), pages 351-367, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.