Loyal Lenders or Fickle Financiers: Foreign Banks in Latin America

42 Pages Posted: 22 Feb 2005

See all articles by Arturo José Galindo

Arturo José Galindo

Inter-American Development Bank

Alejandro Micco

University of Chile

Andrew Powell

Inter-American Development Bank (IDB); Universidad Torcuato Di Tella - School of Business; Harvard University - Center for International Development (CID)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2004

Abstract

We suggest that foreign banks may represent a trade-off for their developing country hosts. A portfolio model is developed to show that a more diversified international bank may be one of lower overall risk and less susceptible to funding shocks but may react more to shocks that affect expected returns in a particular host country. Foreign banks have become particularly important in Latin America where we find strong support for these theoretical predictions using a dataset of individual Latin American banks in eleven countries. Moreover, we find no significant difference between the size of the response of foreign banks to a negative liquidity shock and a positive opportunity shock: in both cases the market share of foreign banks in credit increases.

Keywords: Foreign banks, credit volatility, portfolio choice, international financial markets

JEL Classification: G11, G15, G21

Suggested Citation

Galindo, Arturo José and Micco, Alejandro and Powell, Andrew P. and Powell, Andrew P., Loyal Lenders or Fickle Financiers: Foreign Banks in Latin America (October 2004). Available at SSRN: https://ssrn.com/abstract=670446 or http://dx.doi.org/10.2139/ssrn.670446

Arturo José Galindo (Contact Author)

Inter-American Development Bank ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Alejandro Micco

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

Andrew P. Powell

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Universidad Torcuato Di Tella - School of Business ( email )

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Argentina
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+5411 4783-3220 (Fax)

Harvard University - Center for International Development (CID) ( email )

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Cambridge, MA 02138
United States

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