The purpose of this paper is to discuss three main issues concerning (mainly) developing country experiences with foreign banks. First, we look at the reasons as to why banks are seen to go multinational. Second, we evaluate some of the major concerns countries seem to have when contemplating issuance of permission for foreign bank entry or even at a later stage. Third, we focus on some of the tangible and intangible benefits accruing to countries from significant foreign bank presence in the domestic banking industry.
The nature of our work is empirical documentation and compilation of evidence on all these above mentioned issues from readily accesible sources. A few caveats are in order here. First, we concentrate only on multinational banks chartered in a developed country i.e we do not look into country experiences with foreign banks from developing countries. Second, we are indeed disadvantaged by a serious paucity and unavailability of relevant data over a wide range of countries. Consequently, our analysis will perforce be quite tentative and inconclusive. Third, we do not survey the theoretical literature on the subject.1 However, we do point out the theoretical underpinnings of the various arguments.
For our purposes, a foreign bank is a financial institution engaged in provision of routine banking services in a country other than the one it was originally chartered. Business historians tell us that foreign banks have been around for almost two centuries now.
Banks started foreign operations mainly following the commerce of the parent country but also because they perceived business opportunities in the form of risk-diversification. Section II focusses on some of the reasons as to why banks chose to operate abroad. Section HI analyses some of the so-called costs countries fear they have to bear when allowing foreign bank entry. As we shall see, the evidence on all of these is mixed and inconclusive. Section IV points out some of the benefits of foreign bank presence in a country. The final section concludes.
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