Loyal Lenders or Fickle Financiers: Foreign Banks in Latin America

Galindo, Arturo; Micco, Alejandro; Powell, Andrew

doi:10.2139/ssrn.1818729

Cited by 26 publications

(38 citation statements)

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“…The baseline analysis includes a total of 766 firms. We obtained annual data on firms' liquid financial assets and other balance sheet variables from the Thomson-Reuters Worldscope database and sourced data on bond issuances 1 On the expansion and role of foreign banks in emerging economies see for example Goldberg (2002), Martínez-Peria, Powell and Vladkova (2005) and Galindo, Micco and Powell (2005). 2 We have fewer than 50 firms in countries where there are less than 50 listed domestically owned non-financial corporations.…”

Section: Datamentioning

confidence: 99%

The Second Wave of Global Liquidity: Why Are Firms Acting Like Financial Intermediaries?

Caballero¹,

Panizza²,

Powell³

2016

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work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose, as provided below. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Following a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2016 1 Abstract * Recent work suggests non-financial firms have acted like financial intermediaries particularly in emerging economies. This paper corroborates these findings but then asks "why?" The results indicate evidence for carry-trade activities, but they are focused on countries with higher levels of capital controls, particular controls on inflows. There is little evidence for such activities given other potential motives. It is posited that this phenomenon is due more to the reaction of countries in the face of low global interest rates, quantitative easing and strong capital inflows than incomplete markets or the retreat of global banks due to impaired balance sheets or tighter regulations. JEL classifications: E51, F30, F33

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Section: Datamentioning

confidence: 99%

The Second Wave of Global Liquidity: Why Are Firms Acting Like Financial Intermediaries?

Caballero¹,

Panizza²,

Powell³

2016

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“…It indicates that a loss on a bank hedge will cause a retrenchment, whereas an increase prompts the bank to increase its credit potential and credit supply (Galindo, Micco and Powell, 2003). On the other hand, a higher value of securities, used as collateral, stimulates credit growth (Haddad and Hakim, 2009).…”

Section: Theoretical Backgroundmentioning

confidence: 99%

“…According to Arena et al (2006), the arrival of foreign banks in a less-developed banking environment has, to a certain extent, contributed to the stability of the loan supply. Galindo, Micco and Powell (2003) noted that foreign banks can stabilize the loan supply when domestic deposits are in a crisis.Goldberg (2002) argued that the international operations of foreign banks do not correlate substantially with the business cycle specifi cities of the host countries. Similarly, Cull and Martínez-Peria (2007) confi rmed that the demand responsiveness of foreign banks to the specifi cities of the host-country environment decreases by increasing the aggregate exposure of the host country.…”

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The Stability of the Credit Supply in the Globalized Banking Sector Environment: The Case of the EU New Member States-10

Festić¹

2015

Prague Economic Papers

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Abstract:The infl uence of foreign banks on a host country's lending depends on several factors, including the policy of the parent bank, the strategy of entry, economic cycles in the home country and abroad, growth prospects, the indebtedness of commitments and the capital adequacy of the parent bank. During the most recent economic crisis, the credit supply of foreign banks in the 10 new European Union (EU) Member States has not remained stable in the crisis. More specifi cally, we fi nd evidence that foreign banks have cut the credit supply slightly in the new EU Member States.Keywords: credit supply, cyclicality, stability, crisis, foreign ownership JEL Classifi cation: E32, E51, F34, G21 IntroductionGlobalization provides banks with more opportunities to diversify their business strategies, thus reducing the exposure of the banks to particular markets. On the other hand, the low cost of entry into foreign markets intensifi es competition among banks and consequently increases their exposure to the risks of international fi nancial shocks. This is the reason why globalization has intensifi ed the effects in terms of the exposure to international shocks and leads to a greater systemic risk.In order to assess the banking sector's vulnerability to the global environment, we tested the hypothesis that foreign bank ownership has impacted credit supply stability during the fi nancial crisis in the analysed host countries. We analysed the relationship between the loan supplies of foreign banks in the host economies during the period of the recent fi nancial crisis. In our estimates for the European Union (EU) new Member States-10 (NMS -10), we also tried to fi nd evidence for the hypothesis that the foreign banks reacted pro-cyclically to changes in the host country's macroeconomic environment. When economic growth in the host countries decelerates, the foreign banks in the host country might attempt to scale down the credit supply in favour of other profi table regions and may also be encouraged to decelerate the credit supply growth, due to increased bad loan performance.The rest of the paper is structured as follows. The characteristics of the macro environment in the NMS countries are summarized in Section 2. In Section 3, we present an overview of the empirical literature regarding the stability of the credit supply. In Section 4, *1 Mejra Festić, Bank of Slovenia, Ljubljana, Slovenia (mejra.festic@bsi.si).The statements in the article do not present the statements of the institution, where the author is employed. DOI: 10.18267/j.pep.543 387Volume 24 | Number 04 | 2015 PRAGUE ECONOMIC PAPERS a theoretical background of the empirical analysis, discussion of the data, methodology of the empirical analysis and the results are explained in detail. The implications of the empirical analysis are revisited in the conclusions. The Macro Environment in NMS Countries before and during the CrisisMost of the NMS -10 banking sectors, having undergone similar structural changes over a relatively short period of time, sh...

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“…Foreign banks may affect both financial and macroeconomic stabilityalthough whether or not they increase or reduce volatility is a subject of debate. Part of the literature argues that foreign banks are more likely to be "fickle lenders," since they have better access to alternative business opportunities than domestic banks (Galindo et al, 2005). They could also import shocks from their home countries, thus contributing to the destabilization of domestic banking systems (Goldberg, 2002;Martinez et al, 2005).…”

Section: Introductionmentioning

confidence: 99%

Foreign Banks and Credit Volatility: The Case of Latin American Countries

Haouat

Moccero

Navarro

2012

Rev International Economics

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The number of foreign banks in Latin America increased substantially over the period 1995–2001, prompting a debate on the potential consequences for host countries. Discussions focused on efficiency, the impact on competition and product market diversification in the banking industry, and the quality of the regulatory environment, among other issues. Against this background, this paper uses ARCH techniques to test the impact of foreign banks on both the level and the volatility of real private bank credit in a panel of eight Latin American countries, using quarterly data over the period 1995–2001. The empirical findings show that, together with financial development, the presence of foreign banks has contributed to reducing real credit volatility, improving the buffer shock function of the banking sector.

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Loyal Lenders or Fickle Financiers: Foreign Banks in Latin America

Cited by 26 publications

References 21 publications

The Second Wave of Global Liquidity: Why Are Firms Acting Like Financial Intermediaries?

The Second Wave of Global Liquidity: Why Are Firms Acting Like Financial Intermediaries?

The Stability of the Credit Supply in the Globalized Banking Sector Environment: The Case of the EU New Member States-10

Foreign Banks and Credit Volatility: The Case of Latin American Countries

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