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Foreign bank behavior during financial crises

Author

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  • Adams-Kane, Jonathon
  • Caballero, Julian A.
  • Lim, Jamus Jerome

Abstract

One of the persistent policy problems faced by governments contemplating financial liberalizations is the question of whether to allow foreign banks entry into the domestic economy. This question has become ever more urgent in recent times, due to rapid financial globalization, coupled with the credit contractions experienced as a result of the 2007/08 financial crisis. This paper examines the question of whether opening the financial sector to foreign participation is a good idea for developing countries, using a unique bank-level database of foreign ownership. In particular, the authors examine whether the credit supply of majority foreign-owned financial institutions differ systematically conditional on a crisis event in their home economies. They show that foreign banks that were exposed to crises in their home countries exhibit changes in lending patterns that are lower by between 13 and 42 percent than their non-crisis counterparts.

Suggested Citation

  • Adams-Kane, Jonathon & Caballero, Julian A. & Lim, Jamus Jerome, 2013. "Foreign bank behavior during financial crises," Policy Research Working Paper Series 6590, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6590
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    2. Chiaruttini, Maria Stella, 2020. "Banking integration and (under)development: A quantitative reassessment of the Italian financial divide (1814-74)," IBF Paper Series 03-20, IBF – Institut für Bank- und Finanzgeschichte / Institute for Banking and Financial History, Frankfurt am Main.
    3. Annick Pamen Nyola & Alain Sauviat & Amine Tarazi, 2017. "How Does Regulation Affect the Organizational Form of Banks' Presence in Developing and Developed Countries?," Working Papers hal-01369658, HAL.
    4. Nor Faezah Ghazi Ahmad & Nor Aiza Mohd Zamil & Rohaida Basiruddin & Sarah Athirah Saruchi, 2019. "The Ownership Structure, Capital and Bank Lending in Times of Crisis: Islamic Banks versus Conventional Banks," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(3), pages 150-159, July.
    5. José Carlos Pinho & Maria Lurdes Martins, 2020. "The opportunity to create a business: Systemic banking crisis, institutional factor conditions and trade openness," Journal of International Entrepreneurship, Springer, vol. 18(4), pages 393-418, December.

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    More about this item

    Keywords

    Banks&Banking Reform; Debt Markets; Access to Finance; Financial Crisis Management&Restructuring; Bankruptcy and Resolution of Financial Distress;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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