Foreign banks in Latin America: A paradoxical result

Abstract

During the 1990s there was a dramatic increase in the presence of foreign banking in Latin America. Macroeconomic stabi l i ty and economic reforms, especial ly capital market and financial l iberal izat ion, created attractive condit ions for banks which were looking for economies of scale and worldwide growth. At the same t ime governments hoped that foreign bank penetrat ion would provide a solut ion to the need to increase capital within the system, as wel l as representing an insurance against systemic r isk. The efforts to attract foreign investment coincided with the strategy of the leading players to become global banks. Now that the init ial penetrat ion has been achieved, it is worth analyzing what the impacts have been on the performance of the f inancial system. The main conclusion is that there has been a posit ive outcome for the region in terms of microeconomic eff iciency, but this contrasts with the macroeconomic impact. C E P A L R E V I E W 8 2 • A P R I L 2 0 0 4