Advanced Search
MyIDEAS: Login

Impact of Foreign Banks

Contents:

Author Info

  • Stijn Claessens
  • Neeltje van Horen

Abstract

This paper provides a critical assessment of the costs and benefits of foreign bank ownership. It reviews the extensive literature on the impact of foreign banks and uses a unique database on bank ownership, covering 129 countries, to (re-)examine a number of the issues discussed. It documents (changes in) foreign bank presence between 1995 and 2009, highlighting important differences across host and home countries and strong bilateral patterns. It finds that foreign banks tend to outperform domestic banks in developing countries, countries with weak institutions and where foreign banks do not play a major role. In addition, being from a geographically close home country increases the profitability of foreign banks. In terms of impact, it shows that foreign banks can deter domestic financial sector development in developing countries, countries with weak institutions and where foreign banks play a minor role. Examining the impact of foreign banks on financial stability, it finds that during the global crisis, foreign banks reduced credit more compared to domestic banks in countries where they had a small role, but not when dominant or funded locally. These findings show that, when analyzing the impact of foreign bank presence accounting for heterogeneity, including bilateral ownership, is crucial.

Download Info

If 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.
File URL: http://www.dnb.nl/en/binaries/working%20Paper%20370_tcm47-284840.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 370.

as in new window
Length:
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:dnb:dnbwpp:370

Contact details of provider:
Postal: Postbus 98, 1000 AB Amsterdam
Web page: http://www.dnb.nl/en/
More information through EDIRC

Related research

Keywords: foreign direct investment; international banking; distance;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Berger, Allen N. & Hasan, Iftekhar & Zhou, Mingming, 2009. "Bank ownership and efficiency in China: What will happen in the world's largest nation?," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 113-130, January.
  2. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Mahajan, Arvind & Rangan, Nanda & Zardkoohi, Asghar, 1996. "Cost structures in multinational and domestic banking," Journal of Banking & Finance, Elsevier, vol. 20(2), pages 283-306, March.
  4. De Haas, Ralph & van Lelyveld, Iman, 2009. "Internal Capital Markets and Lending by Multinational Bank Subsidiaries," MPRA Paper 13164, University Library of Munich, Germany.
  5. Berger, Allen N & Hasan, Iftekhar & Klapper, Leora F., 2003. "Further evidence on the link between finance and growth : an international analysis of community banking and economic performance," Policy Research Working Paper Series 3105, The World Bank.
  6. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2004. "Bank competition and access to finance: international evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 627-654.
  7. Vennet, Rudi Vander, 1996. "The effect of mergers and acquisitions on the efficiency and profitability of EC credit institutions," Journal of Banking & Finance, Elsevier, vol. 20(9), pages 1531-1558, November.
  8. Allen N. Berger & Loretta J. Mester, 1997. "Inside the black box: what explains differences in the efficiencies of financial institutions?," Working Papers 97-1, Federal Reserve Bank of Philadelphia.
  9. Claessens, Stijn, 2006. "Competitive implications of cross-border banking," Policy Research Working Paper Series 3854, The World Bank.
  10. Enrica Detragiache & Poonam Gupta & Thierry Tressel, 2006. "Foreign Banks in Poor Countries: Theory and Evidence," IMF Working Papers 06/18, International Monetary Fund.
  11. Jose M. Liberti & Atif R. Mian, 2009. "Estimating the Effect of Hierarchies on Information Use," Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 4057-4090, October.
  12. 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.
  13. Brealey, R. A. & Kaplanis, E. C., 1996. "The determination of foreign banking location," Journal of International Money and Finance, Elsevier, vol. 15(4), pages 577-597, August.
  14. Ewa M. Nikiel & Timothy P. Opiela, 2002. "Customer Type And Bank Efficiency In Poland: Implications For Emerging Market Banking," Contemporary Economic Policy, Western Economic Association International, vol. 20(3), pages 255-271, 07.
  15. Berger, Allen N. & Buch, Claudia M. & DeLong, Gayle & DeYoung, Robert, 2004. "Exporting financial institutions management via foreign direct investment mergers and acquisitions," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 333-366, April.
  16. 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.
  17. Claessens, Stijn & Van Horen, Neeltje, 2007. "Location decisions of foreign banks and competitive advantage," Policy Research Working Paper Series 4113, The World Bank.
  18. Ralph De Haas & Neeltje Van Horen, 2012. "International Shock Transmission after the Lehman Brothers Collapse: Evidence from Syndicated Lending," American Economic Review, American Economic Association, vol. 102(3), pages 231-37, May.
  19. Martinez Peria, Maria Soledad & Mody, Ashoka, 2004. "How foreign participation and market concentration impact bank spreads : evidence from Latin America," Policy Research Working Paper Series 3210, The World Bank.
  20. Ralph De Haas & Yevgeniya Korniyenko & Elena Loukoianova & Alexander Pivovarsky, 2012. "Foreign Banks and the Vienna Initiative: Turning Sinners into Saints?," Mo.Fi.R. Working Papers 62, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  21. Martin Brown & Steven Ongena & Alexander Popov & Pinar Yeşin, 2011. "Who needs credit and who gets credit in Eastern Europe?," Economic Policy, CEPR & CES & MSH, vol. 26(65), pages 93-130, January.
  22. Popov, Alexander & Udell, Gregory F., 2012. "Cross-border banking, credit access, and the financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 147-161.
  23. Sturm, Jan-Egbert & Williams, Barry, 2004. "Foreign bank entry, deregulation and bank efficiency: Lessons from the Australian experience," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1775-1799, July.
  24. Ralph De Haas & Neeltje Van Horen, 2013. "Running for the Exit? International Bank Lending During a Financial Crisis," Review of Financial Studies, Society for Financial Studies, vol. 26(1), pages 244-285.
  25. Frederic Mishkin, 2005. "Is Financial Globalization Beneficial?," NBER Working Papers 11891, National Bureau of Economic Research, Inc.
  26. Dario Focarelli & Alberto Franco Pozzolo, 2005. "Where Do Banks Expand Abroad? An Empirical Analysis," The Journal of Business, University of Chicago Press, vol. 78(6), pages 2435-2464, November.
  27. Dario Focarelli & Alberto F. Pozzolo, 2000. "The determinants of cross-border bank shareholdings: an analysis with bank-level data from OECD countries," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 199-232.
  28. Arturo Galindo & Alejandro Micco & César Manuel Serra, 2003. "Better the Devil that You Know: Evidence on Entry Costs Faced by Foreign Banks," Research Department Publications 4313, Inter-American Development Bank, Research Department.
  29. David A. Grigorian & Vlad Manole, 2002. "Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis," IMF Working Papers 02/146, International Monetary Fund.
  30. 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.
  31. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September.
  32. DeYoung, Robert & Nolle, Daniel E, 1996. "Foreign-Owned Banks in the United States: Earning Market Share or Buying It?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 622-36, November.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:dnb:dnbwpp:370

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rob Vet).

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.