Abstract
Foreign banks have increased their market share in many emerging markets since the mid-1990s. We analyze the financial stability implications of foreign banks for their host countries in the global financial crisis. Our results suggest that a higher share of assets held by foreign banks was associated with more stable cross-border bank flows during the crisis period. This result is largely driven by two regions: Eastern Europe and Sub-Saharan Africa. By contrast, foreign banks had no stabilizing impact on domestic bank lending. Thus, the evidence indicates that the financial stability benefits of a stronger foreign bank presence did not spill over from cross-border to domestic credit flows.
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