The Impact of Multinational Banks on Development Finance

40 Pages Posted: 23 Feb 2000

See all articles by Christian E. Weller

Christian E. Weller

University of Massachusetts Boston - Department of Public Policy and Public Affairs; University of Massachusetts Boston - Gerontology Institute; Political Economy Research Institute

Mark J. Scher

United Nations - Department of Economic and Social Affairs (DESA)

Date Written: July 1999

Abstract

Financial market recommendations for less industrialized economies, particularly in the wake of the recent financial crises, have included a push for more international financial competition. The entry of multinational banks (MNBs) into developing economies is supposed to create more market discipline for domestic banks, thus making them more efficient, and enhancing financial stability. Using data from the BIS and the IMF, we look at the impact of MNBs on credit supply and on financial stability in less industrialized economies. MNBs focus their activities predominantly on serving MNCs, and on providing services that domestic banks cannot offer to domestic corporations, and high net worth individual. This increased competition in certain low risk market segments entices domestic banks to lower their credit exposure in the early stages of international financial competition. However, as MNBs continue to operate and to grow their market shares in less industrialized economies, domestic banks become more confident with the new competitive situation, eventually increasing their loans, especially to the enterprise sector. Both consequences of increased international financial competition - early credit crunches, and later credit growth - can have real implications in the form of lowered business investment or financial instabilities, unless adequate regulatory and supervisory structures are installed.

JEL Classification: F30, F33, F36, F23, O16

Suggested Citation

Weller, Christian E. and Scher, Mark J., The Impact of Multinational Banks on Development Finance (July 1999). Available at SSRN: https://ssrn.com/abstract=200068 or http://dx.doi.org/10.2139/ssrn.200068

Christian E. Weller (Contact Author)

University of Massachusetts Boston - Department of Public Policy and Public Affairs ( email )

McCormack Graduate School
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Boston, MA 02125
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2024605821 (Phone)

HOME PAGE: http://blog.umb.edu/christianweller

University of Massachusetts Boston - Gerontology Institute ( email )

100 Morrissey Boulevard
Boston, MA 02125-3393
United States

Political Economy Research Institute ( email )

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United States

Mark J. Scher

United Nations - Department of Economic and Social Affairs (DESA) ( email )

Room DC2-2114
New York, NY 10017
United States
212-963-8018 (Phone)

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