Foreign Bank Penetration: An Expose of the Pros and Cons
European Journal of Economics, Finance and Administrative Sciences, No. 9, pp. 48-56
19 Pages Posted: 21 Mar 2008 Last revised: 11 May 2009
Date Written: March 18, 2008
Generally speaking, countries exert varying degrees of controls over foreign bank entry into their financial systems. This is due to their varying perceptions of the pros and cons of foreign bank penetration. The pros include better resource allocation, higher competition and efficiency, lower probability of financial crisis, enhanced public confidence in the banking sector, enhanced access to international capital, and development of the underlying bank supervisory and legal framework. The cons include loss of domestic banks' market share, instability of the domestic deposit base, credit rationing to small firms, loss of domestic banks' profitability, foreign domination and control of the banking system, volatility of domestic financial markets, and worsening of the domestic financial system's ability to respond to large internal and external shocks.
Keywords: Bank, Foreign, Penetration, Pros, Cons
JEL Classification: G21
Suggested Citation: Suggested Citation