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Title:Does foreign ownership contribute to sounder banks in emerging markets? The Latin American experience PDF Logo
Authors:Crystal, Jennifer S.
Dages, B.Gerard
Goldberg, Linda S.
Issue Date:2001
Series/Report no.:Staff Report, Federal Reserve Bank of New York 137
Abstract:Foreign bank entrants into emerging markets are usually thought to improve the condition and performance of acquired institutions, and more generally to enhance local financial stability. We use bank-specific data for a range of Latin American countries since the mid-1990s to address elements of this claim. Across the seven largest countries, we find that the financial strength ratings of local banks acquired by foreign entities generally show a slight improvement relative to their domestic counterparts. Our more in-depth case studies of Chile, Colombia, and Argentina do not indicate striking differences in health between larger foreign and domestic retail-oriented banks (although state banks are noticeably weaker). However, foreign banks often have higher average loan growth, higher average provisioning expense, and greater loss-absorption capacity. These results suggest that foreign ownership may provide important positive influences on the stability and development of emerging market banking systems.
JEL:F3
F4
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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