Are Foreign Banks a 'Safe Haven'? Evidence from Past Banking Crises

28 Pages Posted: 26 Mar 2015

See all articles by Gustavo Adler

Gustavo Adler

International Monetary Fund (IMF) - Research Department

Eugenio Cerutti

International Monetary Fund (IMF); Johns Hopkins University

Date Written: February 2015

Abstract

The presence of foreign banks in emerging markets has increased markedly over the last two decades, raising questions about their potentially stabilizing or destabilizing role during times of financial distress. Most studies on this subject have focused on banks’ asset side (i.e., their lending behavior). This paper focuses on their liability side, studying the behavior of depositors vis-à-vis foreign banks. We rely on data from the banking crises in Argentina and Uruguay over the period 1994-2002 to conduct the study. The paper focuses on three questions; (i) are foreign banks perceived as a safe haven during bank runs?; (ii) does their legal structure (branch versus subsidiary) matter?; (iii) do perceptions depend on the nature of the crisis? Contrary to the commonly held view that foreign banks play a stabilizing role during domestic banking crises, we do not find robust evidence in this regard. Only in one (large) bank run episode, out of five studied, there is evidence of safe haven perceptions towards foreign branches.

Keywords: Foreign banks, Argentina, Uruguay, Banking crisis, Bank deposits, Banking systems, Emerging markets, Cross country analysis, bank run, foreign banks., interest, subsidiaries, risk, subsidiary, banking crises

JEL Classification: F21, G15, G21

Suggested Citation

Adler, Gustavo and Cerutti, Eugenio, Are Foreign Banks a 'Safe Haven'? Evidence from Past Banking Crises (February 2015). IMF Working Paper No. 15/43, Available at SSRN: https://ssrn.com/abstract=2585429

Gustavo Adler (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Eugenio Cerutti

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Johns Hopkins University ( email )

Baltimore, MD 21218
United States

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