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Foreign bank ownership and household credit

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  • Beck, Thorsten
  • Brown, Martin

Abstract

Theoretical and empirical work on banking emphasizes the role of banks in overcoming information asymmetries and agency problems between borrowers and lenders. This paper investigates the importance of bank ownership in determining the sorts of customers that a bank serves, and consequently, the sorts of information problems a bank lender chooses to address. Using survey data for over 16,500 households from 19 emerging economies in Central and Eastern Europe in 2010 this paper is the first to document that information asymmetries in the retail credit market lead foreign banks to cherry-pick financially transparent clients in similar ways as documented previously for enterprise credit. First, a higher market share of foreign banks in a country is associated with a larger gap in credit use between households with and without formal employment. Second, among mortgage borrowers, clients of foreign banks are more likely to be formally employed, are more likely to have personal assets, and are richer than clients of domestic banks. Third, consistent with these results, retail lending techniques of foreign banks rely more on financial information and collateral than those of domestic banks.

Suggested Citation

  • Beck, Thorsten & Brown, Martin, 2015. "Foreign bank ownership and household credit," Journal of Financial Intermediation, Elsevier, vol. 24(4), pages 466-486.
  • Handle: RePEc:eee:jfinin:v:24:y:2015:i:4:p:466-486 DOI: 10.1016/j.jfi.2013.10.002
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    References listed on IDEAS

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    Cited by:

    1. Piotr Denderski & Wojciech Paczos, 2015. "Asymmetric financial integration bank ownership and monetary policy in emerging economies," NBP Working Papers 218, Narodowy Bank Polski, Economic Research Department.
    2. repec:seb:journl:v:15:y:2017:i:2:p:209-227 is not listed on IDEAS
    3. Brown, Martin, 2013. "The transmission of banking crises to households : lessons from the 2008-2011 crises in the ECA region," Policy Research Working Paper Series 6528, The World Bank.

    More about this item

    Keywords

    Access to finance; Household credit; Bank-ownership;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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