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Competitive implications of cross-border banking

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  • Claessens, Stijn

Abstract

This paper reviews the recent literature on cross-border banking, with a focus on policy implications. Cross-border banking has increased sharply in recent decades, particularly in the form of entry, and has affected the development of financial systems, access to financial services, and stability. Reviewing the empirical literature, the author finds much, although not uniform, evidence that cross-border banking supports the development of an efficient and stable financial system that offers a wide access to quality financial services at low cost. But as better financial systems have more cross-border banking, the relationship between cross-border banking and competitiveness has to be carefully judged. While developing countries have some special conditions, provided a minimum degree of oversight is in place, they experience effects similar to industrial countries. There are some questions, though, on the effects of cross-border banking on lending based on softer information and on stability. Relevant experiences from capital markets show that the degree of cross-border financial activities can affect local market sustainability and there can be path dependency when opening up to cross-border competition. Reviewing the fast changing landscape of financial services provision, the author argues that cross-border banking highlights the increased importance of competition policy in financial services provision. This competition policy cannot be traditional, institutional based, but will need to resemble that used in other network industries. Furthermore, with globalization accelerating, competition policy will need to be global, supported by greater cross-border institutional collaboration and using the General Agreement on Trade in Services (GATS) process and the disciplines of the World Trade Organization. GATS can be of special value to developing countries as it provides a binding, pro-competition framework that has proven more difficult to establish otherwise.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3854.

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Date of creation: 01 Feb 2006
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Handle: RePEc:wbk:wbrwps:3854

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Keywords: Banks&Banking Reform; Economic Theory&Research; Financial Intermediation; Knowledge Economy; Education for the Knowledge Economy;

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References

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Citations

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Cited by:
  1. Stijn Claessens & Neeltje van Horen, 2013. "Impact of Foreign Banks," DNB Working Papers 370, Netherlands Central Bank, Research Department.
  2. Hella Engerer, 2006. "Vom Dreisäulensystem zum Baustein des europäischen Hauses: Wandel von Eigentum und Wettbewerb im deutschen Bankensektor," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 75(4), pages 11-32.
  3. Aerdt Houben & Iskander Schrijvers & Tim Willems, 2008. "The Supervision of Banks in Europe: The Case for a Tailor-made Set-up," DNB Occasional Studies 604, Netherlands Central Bank, Research Department.
  4. Beck, Thorsten, 2008. "Bank competition and financial stability : friends or foes ?," Policy Research Working Paper Series 4656, The World Bank.
  5. Xavier Vives, 2011. "Competition and Stability in Banking," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.), Monetary Policy under Financial Turbulence, edition 1, volume 16, chapter 12, pages 455-502 Central Bank of Chile.
  6. Müller, Oliver & Uhde, André, 2013. "Cross-border bank lending: Empirical evidence on new determinants from OECD banking markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 136-162.
  7. Stela Ciobu & Ivan Luchian & Alina Birladeanu, 2008. "Banking Innovations Risk – Profitability Relationship In The Banking System Of The Republic Of Moldova," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 41(4), pages 118-122.
  8. Gozzi, Juan Carlos & Levine, Ross & Schmukler, Sergio L., 2010. "Patterns of international capital raisings," Journal of International Economics, Elsevier, vol. 80(1), pages 45-57, January.
  9. Lehner, Maria & Schnitzer, Monika, 2006. "Entry of Foreign Banks and their Impact on Host Countries," CEPR Discussion Papers 5954, C.E.P.R. Discussion Papers.
  10. Neeltje van Horen & Stijn Claessens, 2012. "Foreign Banks: Trends, Impact and Financial Stability," IMF Working Papers 12/10, International Monetary Fund.
  11. Ivana Prica & Jelica Petrović VujaÄić, 2010. "Financial Services Liberalisation in Transition Countries and the Role of the WTO," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(4), pages 487-501, December.

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