Foreign Banks: Trends, Impact and Financial Stability

49 Pages Posted: 28 Dec 2011 Last revised: 4 Jan 2012

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Neeltje van Horen

Bank of England; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: December 28, 2011

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

JEL Classification: F21, F23, G21

Suggested Citation

Claessens, Stijn and van Horen, Neeltje, Foreign Banks: Trends, Impact and Financial Stability (December 28, 2011). De Nederlandsche Bank Working Paper No. 330. Available at SSRN: https://ssrn.com/abstract=1977446 or http://dx.doi.org/10.2139/ssrn.1977446

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Neeltje Van Horen

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://www.bankofengland.co.uk/research/Researchers/neeltje-van-horen

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
439
Abstract Views
1,702
rank
28,785
PlumX Metrics