The determinants of US banking activity abroad

Goldberg, Lawrence G.; Johnson, Denise M.

doi:10.1016/0261-5606(90)90026-v

Cited by 163 publications

(105 citation statements)

References 12 publications

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“…Many studies examing the determinants of foreign bank activity find that the expansion is determined by foreign direct investment in other sectors of the economy, suggesting a "follow the customer" strategy 9 (Aliber (1984), Buch and Lapp (1998), Buch (2000), Goldberg and Saunders (1981), Goldberg and Johnson (1990), Gross and Goldberg (1991), Miller and Parkhe (1998), Sabi (1988), Sagari (1992)). However, most of these studies focus on U.S. banks, and the motivation behind their entry into foreign markets, varies by region.…”

Section: Competition and Efficiencymentioning

confidence: 99%

The Role of Foreign Banks in Post-Crisis Asia: The Importance of Method of Entry

Montgomery

2003

SSRN Journal

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PREFACEThe ADB Institute aims to explore the most appropriate development paradigms for Asia composed of well-balanced combinations of the roles of markets, institutions, and governments in the post-crisis period.Under this broad research project on development paradigms, the ADB Institute Research Paper Series will contribute to disseminating works-in-progress as a building block of the project and will invite comments and questions.I trust that this series will provoke constructive discussions among policymakers as well as researchers about where Asian economies should go from the last crisis and recovery. First, using data on the presence of foreign banks via branching as well as subsidiaries, the study shows that the presence of foreign banks in the four crisis-hit countries is actually much larger than has been previously reported once the presence of foreign branches is accounted for in the data. However, the percentage of assets controlled by foreign banks in Asia is still lower than that of other emerging economies, despite great increases in the post-crisis period. The author reviews regulations on foreign bank entry that may have limited the presence of foreign banks or influenced the method of entry (branching versus subsidiary).Given recent regulatory changes and the need for bank recapitalization in the region, the presence of foreign banks is expected to increase in the near future, so this study next takes up the policy implications of this trend. To date, foreign banks in most Asian countries appear to perform relatively worse than their domestic counterparts as measured by return on equity, cost to income ratios, and the ratio of problem loans to total loans. This finding contradicts previous research in other emerging economies, and may be due to the fact that foreign bank entry in Asia is still a very recent phenomenon, and has occurred mostly through the takeover of troubled banks in the region.The second policy issue examined here is the stability of lending by foreign banks relative to domestic banks. Macroeconomic data suggests that foreign bank lending may in some cases be more stable than domestic bank lending, particularly during crisis, but that the stability of foreign bank lending varies greatly by method of entry. Cross border claims of foreign banks are the most volatile, followed by foreign bank branch lending. Lending by foreign bank subsidiaries capitalized in the host country appear to be more stable than domestic lending, perhaps providing much needed capital during times of crisis. Therefore, foreign banks play an important role in Asia, not only in the traditional ways by providing new services and stimulating competition and efficiency, but also by contributing to stability of the banking sector in the face of macroeconomic fluctuations. However, the mode of foreign entry seems to have important implications for the contributions of foreign banks. Since lending by off-shore banks and foreign bank branches seems to be more volatile than locally capitalized foreign subsidiari...

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Section: Competition and Efficiencymentioning

confidence: 99%

The Role of Foreign Banks in Post-Crisis Asia: The Importance of Method of Entry

Montgomery

2003

SSRN Journal

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“…Most authors have focused on the relation between bilateral trade and financial FDI,or FDI and financial FDI 18 . Regarding the former, Goldberg and Johnson (1990) find that US bank decisions to expand in a foreign country are very much influenced by the amount of bilateral trade between the US and that specific country.…”

Section: Microeconomic/behavioural Determinantsmentioning

confidence: 98%

“…Among the push factors, a very relevant one is the existence of domestic restrictions limiting banks' operations at home (Buch and DeLong (2001)). As regards pull factors, the openness of the host country to the establishment of new foreign branches and subsidiaries is key, as well as tax incentives (Nigh, Cho and Krishnan (1986), Goldberg and Johnson (1990), Golberg and Grosse (1994), Sagari (1992), Barth et al (2001), andMilher andParkhe (1998)). In the same vein, Focarelli and Pozzolo (2001) show that banks prefer to acquire equity interests in countries where either regulatory restrictions on banking activities are low or the market is less concentrated…”

Section: Macroeconomic Determinantsmentioning

confidence: 99%

Determinants and Impact of Financial Sector FDI to Emerging Economies: A Home Country's Perspective

Garcı́a-Herrero

Navia

2003

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This paper reviews the theoretical literature explaining financial FDI, as well as the empirical results on the determinants of financial FDI and its potential effects for the home country. From this revision, we conclude that, at the present stage, the existing theoretical paradigms need to be adapted to explain the recent surge in international banks' local operations in emerging countries financial sectors. Macroeconomic and risk diversification theories would seem particularly well-suited to explain this reality. The empirical literature on financial FDI has concentrated on bank-specific factors and much less so on macroeconomic determinants, particularly push factors where generally only general FDI literature is available. The survey draws on this literature in those cases where no specific results for financial FDI exist. Finally, the effects of financial FDI on the home country are virtually unknown. The literature on general FDI has focused on employment, trade and investment effects, yet the consequences on the profitability and systemic risk of home's financial system remain a topic for debate.

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“…Most of them have focused on the US' case, investigating either foreign banking expansion in the US (Hultman and McGee, 1989, Grosse and Goldberg, 1991and Heinkel and Levi, 1992, or foreign expansion by banks from the US (Fieleke, 1977, Nigh, Cho and Krishnan, 1986, Sabi, 1988and Goldberg and Johnson, 1990. These studies have shown the importance of commercial ties with the host country as well as the existing regulation towards foreign banking entry, as the main determinants of foreign banking activity.…”

Section: Review Of the Literaturementioning

confidence: 99%

The Choice of the Form of Representation in Multinational Banking: Evidence from Spain

Blandón

1998

SSRN Journal

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The determinants of US banking activity abroad

Cited by 163 publications

References 12 publications

The Role of Foreign Banks in Post-Crisis Asia: The Importance of Method of Entry

The Role of Foreign Banks in Post-Crisis Asia: The Importance of Method of Entry

Determinants and Impact of Financial Sector FDI to Emerging Economies: A Home Country's Perspective

The Choice of the Form of Representation in Multinational Banking: Evidence from Spain

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