Foreign bank presence in emerging markets: help or hindrance to banking system stability?

Roisin O'Sullivan and Ayse Ozsoz

Applied Economics Letters, 2010, vol. 17, issue 7, 623-626

Abstract: With financial liberalization during the 1990s, there was a marked increase in the involvement of foreign banks in emerging market economies. This study uses data from 32 emerging markets for the period 1999 to 2005 to investigate whether the presence of foreign banks promotes or hurts the stability of the banking systems in these economies. We find consistently that a greater presence of foreign banks does not harm banking system stability and, under some definitions, is associated with a statistically significant fall in the probability of a banking crisis. This result is robust across different ways of distinguishing foreign from domestic banks, thus providing useful information to policy makers and banking regulators.

Date: 2010
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DOI: 10.1080/13504850802297939

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