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The effect of foreign entry on Argentina's domestic banking sector

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Author Info

  • Clarke, George R. G.
  • Cull, Robert
  • D'Amato, Laura
  • Molinari, Andrea

Abstract

The authors analyze how foreign entry affected domestic banks in Argentina during an especially intense period of entry in the mid-1990s. Their results are consistent with the hypothesis that foreign banks enter areas where they have a competitive advantage, putting pressure on the domestic banks already focused on that type of lending. They find that domestic banks with loan portfolios concentrated in manufacturing - an area to which foreign banks have traditionally devoted much of their lending - tended to have lower net margins and lower before-tax profits than other domestic banks. The informational advantages local banks enjoyed probably helped ensure that foreign banks would not drive them from the market. Domestic banks with greater consumer lending - an area in which foreign banks have not been heavily involved - had higher net margins and greater before-tax profits. Domestic banks that focused on mortgage lending - an area foreign banks entered aggressively in the mid-1990s - experienced falling net margins and increasing overhead. There were many domestic bank failures in the mid-1990s, but the banks that failed were not heavily concentrated in the types of lending favored by foreign banks.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2158.

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Date of creation: 31 Aug 1999
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Handle: RePEc:wbk:wbrwps:2158

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Related research

Keywords: Payment Systems&Infrastructure; Financial Intermediation; Banking Law; Banks&Banking Reform; Financial Crisis Management&Restructuring; Banks&Banking Reform; Financial Intermediation; Financial Crisis Management&Restructuring; Banking Law; Financial Economics;

References

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  1. Caprio, Gerard Jr. & Summers, Lawrence H., 1993. "Finance and its reform : beyond laissez-faire," Policy Research Working Paper Series 1171, The World Bank.
  2. Ursacki, Terry & Vertinsky, Ilan, 1992. "Choice of entry timing and scale by foreign banks in Japan and Korea," Journal of Banking & Finance, Elsevier, vol. 16(2), pages 405-421, April.
  3. Kindleberger, Charles P., 1983. "International banks as leaders or followers of international business : An historical perspective," Journal of Banking & Finance, Elsevier, vol. 7(4), pages 583-595, December.
  4. Allen N. Berger, 1994. "The relationship between capital and earnings in banking," Finance and Economics Discussion Series 94-2, Board of Governors of the Federal Reserve System (U.S.).
  5. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  6. Clarke, George R. G. & Cull, Robert, 1999. "Why Privatize? The Case of Argentina's Public Provincial Banks," World Development, Elsevier, vol. 27(5), pages 865-886, May.
  7. Claessens, Stijn & Demirguc-Kunt, Asli & Huizinga, Harry, 1998. "How does foreign entry affect the domestic banking market?," Policy Research Working Paper Series 1918, The World Bank.
  8. Clarke, George R. G. & Cull, Robert, 1999. "Provincial bank privatization in Argentina : the why, how, and"so what"?," Policy Research Working Paper Series 2159, The World Bank.
  9. Aliber, Robert Z, 1984. "International Banking: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 661-78, November.
  10. Goldberg, Lawrence G & Saunders, Anthony, 1981. "The Growth of Organizational Forms of Foreign Banks in the U.S.: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(3), pages 365-74, August.
  11. Grosse, Robert & Goldberg, Lawrence G., 1991. "Foreign bank activity in the United States: An analysis by country of origin," Journal of Banking & Finance, Elsevier, vol. 15(6), pages 1093-1112, December.
  12. Hondroyiannis, George & Papapetrou, Evangelia, 1996. "International banking activity in Greece: The recent experience," Journal of Economics and Business, Elsevier, vol. 48(3), pages 207-215, August.
  13. Goldberg, Lawrence G. & Saunders, Anthony, 1981. "The determinants of foreign banking activity in the United States," Journal of Banking & Finance, Elsevier, vol. 5(1), pages 17-32, March.
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