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Foreign Banks: Trends, Impact and Financial Stability

Stijn Claessens () and Neeltje Van Horen ()

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: Using a new, comprehensive database on bank ownership, identifying also the home country of foreign banks, for 137 countries over the period 1995-2009, this paper provides an overview of foreign bank activity and its impact of financial development and stability. We document substantial increases in foreign bank presence, especially in emerging markets and developing countries, but which slowed down dramatically with the onset of the global crisis. Over time, banks from many more home countries have become active as investors, with several emerging countries becoming important exporters. Investment, however, remains mostly regional. In terms of loans, deposits and profits, current market shares of foreign banks average 20 percent in OECD countries and close to 50 percent in developing countries and emerging markets. Foreign banks differ from domestic banks in key balance sheet variables, notably having higher capital and more liquidity, but lower profitability. Cross-country analysis shows that only in developing countries is foreign bank presence negatively correlated with domestic credit creation. Finally, using panel regressions, we show that during the global crisis foreign banks reduced credit more compared to domestic banks, but not when dominant in the host country.

Keywords: foreign banks; foreign direct investment; cross-border banking; bilateral investment; financial globalization; financial sector development; financial stability; spillovers; financial crisis (search for similar items in EconPapers)
JEL-codes: F21 F23 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-cba
Date: 2011-12
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Related works:
Journal Article: Foreign Banks: Trends and Impact (2014) Downloads
Working Paper: Foreign Banks; Trends, Impact and Financial Stability (2012) Downloads
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