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Foreign banks, profits and commercial credit extension in the United States

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  • Philip Molyneux
  • Rama Seth

Abstract

This paper simultaneously models the determinants of foreign bank profitability and commercial credit extension in the United States between 11987 and 1991. Overall, the results indicate that supply-side factors such as capital strength, commercial and industrial loan growth, and assets composition were important factors in determining foreign banks' return-on-assets in the period under study. Capital strength stands out as being the most important factor influencing foreign bank return on shareholders equity. U.S. demand also appeared to be important in determining foreign bank performance but it had no significant impact on growth in commercial lending. There is also little evidence to suggest that the largest foreign banks are significantly more profitable than their smaller counterparts. In general, it appears that capital strength will be one of the most important factors determining foreign bank performance in the United States over the coming years. As a consequence, we tentatively suggest that capital considerations may well outweigh other factors when foreign bank expansion plans are considered in the United States prior to the 1997 nationwide branch banking watershed.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9628.

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Date of creation: 1996
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Handle: RePEc:fip:fednrp:9628

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Keywords: Bank profits ; Banks and banking; Foreign - United States;

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Cited by:
  1. Claudia M. Buch & Stefan M. Golder, 1999. "Foreign Competition and Disintermediation: No Threat to the German Banking System?," Kiel Working Papers 960, Kiel Institute for the World Economy.
  2. Michal Jurek, . "Role and impact of different types of financial institutions on economic performance and stability of the real sector in selected EU member states," Working papers, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project wpaper36, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
  3. Claudia M. Buch & Stefan M. Golder, 2000. "Foreign competition and disintermediation: no threat to the German banking system?," BNL Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 53(213), pages 107-133.
  4. Joe Peek & Eric S. Rosengren & Faith Kasirye, 1998. "The poor performance of foreign bank subsidiaries: were the problems acquired or created?," Working Papers, Federal Reserve Bank of Boston 98-3, Federal Reserve Bank of Boston.
  5. Minh To, Huong & Tripe, David, 2002. "Factors influencing the performance of foreign-owned banks in New Zealand," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 12(4-5), pages 341-357.
  6. Fiona, Tregenna, 2006. "An empirical investigation of the effects of concentration on profitability among US banks," MPRA Paper 13731, University Library of Munich, Germany, revised 2009.
  7. Havrylchyk, Olena & Jurzyk, Emilia, 2006. "Profitability of foreign banks in Central and Eastern Europe: Does the entry mode matter?," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 5/2006, Bank of Finland, Institute for Economies in Transition.
  8. Kyriaki Kosmidou & Fotios Pasiouras & Angelos Tsaklanganos, 2005. "Factors influencing the profits and size of Greek banks operating abroad: a pooled time-series study," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(10), pages 731-738.
  9. de Haas, Ralph & van Lelyveld, Iman, 2006. "Foreign banks and credit stability in Central and Eastern Europe. A panel data analysis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(7), pages 1927-1952, July.
  10. José Eduardo Gómez Gónzlaez & Jorge Mario Uribe Gil & Hernán Piñeros Gordo, 2009. "Determinantes de la Rentabilidad de los Bancos en Colombia: ¿Importa la Tasa de Cambio?," BORRADORES DE ECONOMIA 005405, BANCO DE LA REPÚBLICA.
  11. Claudia M. Buch & Stefan M. Golder, 2000. "Foreign competition and disintermediation: no threat to the German banking system?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 53(213), pages 107-133.
  12. Williams, Barry, 2003. "Domestic and international determinants of bank profits: Foreign banks in Australia," Journal of Banking & Finance, Elsevier, Elsevier, vol. 27(6), pages 1185-1210, June.

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