Foreign bank penetration of newly opened markets in the Nordic countries

Abstract

The opening to foreign banks in the Nordic countries provides us with an opportunity to study the evolution of the foreign bank sector in situations where the sector had a definite start date. Despite low survival rates for individual foreign banks, on balance the foreign bank sector gained market share (in terms of the assets of the banking system) over time. Our results for the role of time, links to the home market and problems facing domestic competitors were strongly in accordance with expectations in the cases of Denmark, mixed or indeterminate for Finland and Norway, and strongly opposite in the case of Sweden. Lastly, our results are broadly consistent with the Stiglitz–Weiss argument that the foreign banks bought entry by accepting worse lending risks.