Topics in Multinational Banking and International Industrial Organization

Peter Beermann

Munich Dissertations in Economics from University of Munich, Department of Economics

Abstract: The ongoing globalisation has not stopped short of the banking sector. From a political point of view wide voiced concerns about the effect of such banking globalisation have arisen. From a scientific perspective, one of the open points left for dicussion, is the question which factors shape banks' internationalisation strategies. Additionally, a large literature has recently started to discuss optimal entry modes into international markets in general. This thesis offers four chapters for insight on each of these topics. A case study on Bank Austria in Eastern Europe is presented, yielding insights on bank internationalisation strategies. One key finding is, that the optimal entry mode for banks seems to be closely tied to the banking segment (retail versus wholesale banking) the respective bank operates in. Additionally the thesis offers a theoretical chapter on the optimal entry mode of firms into foreign markets in a world of sequential entry. The primary result of the model is, that Greenfield Investment is an undervalued mode of entry, because it reduces the likelihood of further sequential entry. An open question on when banks follow their customers abroad is also discussed with the help of a theoretical model. I find that whether banks follow their customers abroad or not depends on the riskiness of respective customer loans, both from a customer cash flow point of view as well as a political risk of blocked repayment transfers by local governments abroad. A wide-voiced concern that smaller enterprises suffer in their ability to source finance from banks as the banking sector consolidates is finally discussed. Such a threat is indeed found in a theoretical analysis, as increased layers of hierarchy in consolidated institutions lead to a likely stop of loan provision to smaller companies within the bank, while due to the relationship-based lending nature of small firm bank finance, the likelihood that another bank acts as a new lender to the small firm set free is low.

Keywords: Banking; International; Industrial Organisation; Entry modes; credit crunch (search for similar items in EconPapers)
Date: 2008-01-23
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