Abstract

An internationalizing wave swept through many developing and emerging countries’ banking systems in the years before the onset of the Global Financial Crisis (GFC) in 2008. Early critics of the influx of foreign banks worried that local affiliates of international behemoths could serve key nodes for transmitting turbulent conditions in the global financial hubs to the peripheries of the world economy. The eruption of the GFC and its aftermath, it would appear, decisively settled the dispute over the merits of foreign control of national banking systems in the critics’ favor. Yet the simple foreign/domestic ownership distinction cannot answer the questions that animate this article: why did foreign-owned banks play an amplifying role during the crisis in one region (post-communist Central and Eastern Europe) but not in another (Central and South America)? What accounts for the difference in how foreign-owned banks responded to a common financial shock across the two regions? I argue that financialization of banking systems in the post-communist European group of countries is a key mediating factor that explains why the heavy foreign bank presence in the region amplified the regional effects of the global credit crunch in 2008 and the years that followed.

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