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The entry of multinational banks into Latin America: a source of stability or financial fragility?

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  • Alexandre MINDA (LEREPS-GRES)

Abstract

This paper aims to contribute to the debate regarding the presence of foreign banks in Latin America. To clarify the discussion, we shall conduct a survey of the theoretical and empirical literature devoted to internationalisation in the banking sector so as to provide a better analysis of the determinants that currently underpin foreign banking investments. The international banks concerned come mainly from the European Union, particularly Spain, and primarily focus their investments in the region’s large emerging economies. They display profitability indicators that are on a par with those of domestic banks, generate a significantly lower level of operational efficiency, but are more efficient in their management of risk. Multinational banks can help reinforce banking stability by spreading new risk management methods, by introducing new control procedures and strengthening asset solidity. However, they are partly responsible for the credit squeeze from which Latin America is suffering. Foreign banks can be the cause of new sources of banking fragility such as the exposure to foreign exchange risks, the increase in market influence, persistently high intermediation spreads and the moral hazard.

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Bibliographic Info

Paper provided by Groupement de Recherches Economiques et Sociales in its series Cahiers du GRES with number 2007-06.

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Date of creation: 2007
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Handle: RePEc:grs:wpegrs:2007-06

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Web page: http://gres.u-bordeaux4.fr/
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Keywords: Foreign banks; multinational banks; Latin America; financial stability; credit squeeze; banking fragility;

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Cited by:
  1. Jonathan A. Batten & Peter G. Szilagyi, 2011. "The Recent Internationalization of Japanese Banks," Japanese Economy, M.E. Sharpe, Inc., vol. 38(1), pages 81-120, April.
  2. Alexandre MINDA (LEREPS-GRES), 2008. "The strategies of multilatinas: from the quest for regional leadership to the myth of the global corporation \r\n," Cahiers du GRES 2008-08, Groupement de Recherches Economiques et Sociales.

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