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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.

Suggested Citation

  • Alexandre MINDA (LEREPS-GRES), 2007. "The entry of multinational banks into Latin America: a source of stability or financial fragility?," Cahiers du GRES (2002-2009) 2007-06, Groupement de Recherches Economiques et Sociales.
  • Handle: RePEc:grs:wpegrs:2007-06
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    File URL: http://cahiersdugres.u-bordeaux4.fr/2007/2007-06.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jonathan Batten & Peter Szilagyi, 2011. "The Recent Internationalization of Japanese Banks," Japanese Economy, Taylor & Francis Journals, vol. 38(1), pages 81-120.
    2. Alfred Janc & Pawel Marszalek, 2015. "Effects of internationalization, privatisation and demutualization of the financial sector on supply of finance and stability," Working papers wpaper119, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    3. Claude LACOUR (GREThA) & Sylvette PUISSANT (GREThA), 2008. "Medium-Sized Cities and the Dynamics of Creative Services," Cahiers du GREThA 2008-08, Groupe de Recherche en Economie Théorique et Appliquée.

    More about this item

    Keywords

    Foreign banks; multinational banks; Latin America; financial stability; credit squeeze; banking fragility;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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