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