Facilitated by financial liberalization and the need to recapitalize banking systems in the aftermath of financial crises, the volume of cross-border mergers and acquisitions (M&As) targeting banks in emerging markets surged from about US$6 billion during 1990-1996, to almost US$50 billion-roughly one-third of the global amount- during 1997-2000 ( BIS, 2004). These results provide weak support to the existence of supply-side effects in credit markets and suggest that foreign bank entry in emerging countries may have contributed somewhat to stability in credit markets.įoreign bank entry into emerging market economies has become an important component of financial globalization since the mid-1990s. However, the differences across domestic and foreign banks do not appear to be strong. The lending and deposit rates of foreign banks tend to be smoother during periods of financial distress. Using differences in bank ownership as a proxy for financial constraints, the paper finds weak evidence that foreign banks have a lower sensitivity of credit to monetary conditions relative to their domestic competitors, with the differences driven by banks with lower asset liquidity and/or capitalization. It also looks for systematic differences in the behavior of domestic and foreign banks during periods of financial distress and tranquil times. This paper exploits a panel dataset comprising 1,565 banks in 20 emerging countries during 1989- 2001 and compares the response of the volume of loans and the rates on loans and deposits to various measures of monetary conditions across domestic and foreign banks.
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