Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87951
Authors: 
Galindo, Arturo
Micco, Alejandro
Powell, Andrew
Year of Publication: 
2005
Series/Report no.: 
Working Paper, Inter-American Development Bank, Research Department 529
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 11 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.
Document Type: 
Working Paper

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