Bank Entry Research Articles

Convergence of bank competition in Central and Eastern European countries: do foreign and domestic banks go hand in hand?

Following the massive entry of foreign banks into the Central and Eastern European (CEE) banking markets, one may wonder whether their competitive behaviour differs from that of their domestic counterparts, possibly leading to the segmentation of these markets at the regional and national levels. We find that the competitive behaviour of foreign and domestic banks differs, with foreign banks having less market power until the recent financial crisis and more market power after this financial turmoil. Despite this difference, banks tend to behave similarly, and their market power converges to a similar level. The tendency towards similar competitive behaviour is observed at the regional and national levels and for both foreign and domestic banks, although foreign institutions that enter these markets through the acquisition of domestic banks have slightly more market power. Our findings suggest the regional integration of CEE banking markets and no segmentation between foreign and domestic institutions.

Impact of Foreign Bank Entry on SME Credit in the Indonesian Banking Sector

Impact of Foreign Bank Entry on SME Credit in the Indonesian Banking Sector

Performance of Kisan Credit Card Scheme by Regional Rural Banks in Punjab

The nationalization of banks in 1969, entry of commercial banks and emergence of Regional Rural Banks in 1975 gave wider reach to short term delivery system in the country. The main objective of the present study is to assess the performance of Kisan Credit Card (KCC) scheme by the regional rural banks in Punjab. The performance has been studied in terms of number of cards; and amount sanctioned, disbursed and outstanding at the end of each year. The period of the study is from 2003-04 to 2014-15. It is found that agency-wise growth of KCC scheme has shown ups and downs throughout the period of study both in terms of number of cards; and amount sanctioned and disbursed.

The Impact of Bank Regulation and Supervision on Competition: A Evolution in the Emerging Economies

This article empirically investigates the influence of bank regulation and supervision on the competitive landscape within banking systems. Using the information on 23 emerging economies from 1996 to 2016, we confirm banking system with lower activity restrictions and (foreign) bank entry barriers to be more competitive. The greater capital stringency and official supervisory power enhances the competition in banking industry. Our findings also highlight that greater explicit guidelines for asset diversification and deposit insurance coverage, and lower private-sector monitoring are associated with more intensive bank competition. A further examination concerning bank crisis reveals that during the bank crisis, the relationship between activity restriction, entry barriers, diversification guidelines and competition become more pronounced, and the positive effect of foreign bank limitation, capital stringency, official supervisory power, and private monitoring on competitive condition become less effective. Finally, we categorize our sample into foreign banks and domestic banks and find that foreign banks are more sensitive to the official supervisory power and private monitoring, and less sensitive to activity restrictions, foreign bank limitations and diversification guidelines.

Quiet Life No More? Corporate Bankruptcy and Bank Competition

Pursuing delinquent borrowers requires considerable effort, and creditors may lack the incentive to exert this costly effort in uncompetitive banking sectors. To examine this, we use a uniquely large data set of public and private corporate bankruptcy filings spanning a banking-sector reform that deregulated bank entry across different regions of India. We find that increased banking competition is associated with more firms seeking a stay on assets, a decline in bankruptcy duration, and a shift toward workouts rather than liquidations. The results are consistent with creditors exerting greater effort to pursue delinquent firms and resolve bankruptcies more quickly when competition increases.

Labor Scarcity, Finance, and Innovation: Evidence from Antebellum America

How does access to finance affect technological innovation? We provide causal evidence on the finance-innovation nexus and on the role of labor practices in shaping this relation. We exploit a unique setting—antebellum America—where staggered adoption of free banking laws across states encouraged bank entry, and spatial variation in the use of exploited workers in agriculture generated differences in producers' demand for labor-saving technologies. Results show that access to finance spurred innovation, but the positive effect on agricultural innovation diminished with labor exploitation. Where exploitative labor practices were pervasive, finance aggravated exploitation and appears to have impeded agricultural innovation.

The (dis)advantages of clearinghouses before the Fed

Operating in individual cities, US clearinghouses were the closest thing to a central bank before 1914, but they only assisted banks that chose to join the association. Using an annual bank-level database for seven states between 1880 and 1910, this paper shows that after the entry of a clearinghouse member banks were less likely and nonmember banks in the same city were more likely to close. The results are driven by the fact that the presence of clearinghouses led all banks to become more exposed to systemic liquidity risk, yet provided liquidity only to member banks during panics.

Does Foreign Bank Entry Affect Domestic Enterprise Innovation?

ABSTRACTHow does financial opening-up impact the real economy? The answer is important to China, the largest economy in transition experiencing a critical period of further reform of the financial system. We capture the influence of financial reform through foreign bank entry in this paper. Starting with a description of the process of foreign bank entry in China, we sum up two paths through which foreign bank entry affects China’s domestic enterprise innovation: the direct effect and the spillover effect. Then, using the data of public listed companies in China from 2001 to 2014, we investigate the effects of foreign bank entry on domestic enterprise innovation by exploiting the staggered multiple exogenous shocks and using a difference-in-difference approach. The results show that foreign bank entry contributes significantly to domestic enterprise innovation, and they are robust when considering the potential concerns of omitted variables and reverse causality. Further study illustrates that the nurturing role derives not only from the direct effect (although it is very limited), but also from the spillover effect of foreign bank entry by enhancing competition among domestic banks. The findings suggest that it is necessary to mitigate the barriers to foreign banks and expand the banking sector in China.

Identifying customers’ expectations from banks in India (A study of select bank’s customers in Uttar Pradesh with special reference to Varanasi District)

Identification of service quality as a tool for competing is relatively a recent phenomenon in Indian banking sector. With the emergence of Globalisation, foreign players are also permitted to enter into the Indian Banking sector. The entry of foreign banks along with the private banks has increased the competition drastically and dramatically in the Indian banking sector. It has made public sector banks to think over the service quality offered by them and customise them as per customers ’requirements, to sustain in the competitive environment.

SYSTEMATIZATION OF THE EFFECTS THAT ARISE IN CONNECTION WITH THE EXPANSION OF TRANSNATIONAL BANK CAPITAL

Introduction. Openness to transnational financial flows is one of the most important indicators of the development of banking systems. The advocates of openness of banking systems for the entry of transnational banks as positive characteristics indicate increased competition in the banking sector, increased financial stability and efficiency, application of the newest management methods, diffusion of banking innovations, consolidation of both prudential standards and standards of regulation and supervision of banking activities. The purpose. The purpose of the article is to study the signs of globalization of financial space and the main forms of the presence of foreign banks in the territory of the host country and identify a set of risks and effects arising from the expansion of transnational bank capital. Results. The main consequences of the openness of banking systems for the expansion of transnational bank capital are investigated in the article. The main forms of the presence of foreign banks in the territory of the host country are identified, namely: representation of a foreign bank, a branch of a foreign bank, a bank with foreign participation and a subsidiary bank. The factors influencing the choice by a transnational bank of a certain organizational form of presence in foreign markets are determined. The differences in the behavior of branches of transnational banks and subsidiary banks in the financial markets of the host country are examined. A set of risks emerged in the case of the openness of the banking system and the presence of branches of transnational banks is identified. A set of effects generated by the expansion of transnational bank capital is investigated. Conclusions. The removal of barriers to capital flows must be coordinated with certain measures in macroeconomic policy. Failure to comply with this condition can lead to crisis phenomena, growth of external debt, especially short-term, and threaten the financial stability of the state.

Foreign bank entry and financial development: New evidence on the cherry picking and foreign bank’s informational disadvantage phenomena in the MENA countries

This study investigates the impact of foreign banks entry on financial development in the MENA countries. We use the relative number of foreign banks as proxy for foreign banks entry, and liquid li...

ESTIMATION OF THE BANKING SECTOR COMPETITION IN THE CEE COUNTRIES: THE PANZAR-ROSSE APPROACH

Competitive conditions in the banking sectors in the light of transition process in the Central and Eastern Europe countries (CEE) has been subject of interest for researchers and policy-makers, especially upon entry of foreign banks and concentrated markets. In this paper the Panzar-Rosse approach is used to assess competition of banking sectors in CEE. By using General Method of Moments on the panel data for 300 banks for the period 1999-2009, empirical evidence indicates that banks operating in the CEE exert monopoly behaviour. From the methodological point of view, the findings suggest that using a price equation or controlling for total assets in a Panzar-Rosse approach produces upwards biased and invalid estimates of the H-statistic. Therefore, further support is provided for maintaining a reducedform revenue equation when estimating a Panzar-Rosse model. The findings also suggest that banks operating in the non-EU countries of the CEE region have exerted stronger market power compared to the banks operating in the EU countries of this region. Policy-makers should improve competitive conditions and general ‘enabling’ environment for the banking sectors, especially the non-EU countries of the CEE region, while balancing competition-stability trade-off.

ЯПОНСКИЕ БАНКИ НА РОССИЙСКОМ РЫНКЕ

The paper focuses on entry cases of Japanese banks into Russia’s market by investigating the history of foreign entry, entry modes, and motivation for entry. By empirically examining the relevant cases, we demonstrate that the foreign entry of Japanese banks into Russia’s market was implemented in several stages starting from the 1992 and was mostly motivated by “follow the customer approach.” During the initial stages of entry, Japanese banks actively applied the “organic growth strategy” and established representative offices in Russia that were later transformed into domestic subsidiaries (Russia’s domestic juridical entities with Japanese capital participation). The paper also highlights the fact that the motivation for entry and entry modes of Japanese banks in Russia are subject to change over time. The analysis of activities of banks with Japanese capital participation of more than 50% reveals that starting from 2006, Japanese banks preferred the brownfield type of investments and acquired a few Russian banks in order to minimize costs of entry and other transaction costs. The detailed examination of the ultimate owners of banks with foreign capital participation allowed to identify the fact that Japanese banking FDI is directed to Russia via third countries such as Germany and the Netherlands. In addition, we defined the following segments of Russia’s banking market where banks with Japanese capital participation operate: support of Japanese companies and their affiliated businesses in Russia, financial services procurement to large Russian companies and banks, retail business (automobile credits), and internet-banking. Despite the fact that the activities of banks with Russian capital participation remain rather limited, recent agreements on further promotion of Japan-Russia economic cooperation leave a window of opportunity for Japanese banks to increase the scope of their activities in Russia. In fact, some banks already demonstrate growing interests to financing small and medium enterprises in Russia.

The Impact of Bank Branching Deregulations on the U.S. Agricultural Sector

We demonstrate how states that lifted restrictions on interstate bank expansions, thereby improving access to cheaper credit, experienced increased farm sales and net farm income. In our empirical analysis, we use nationwide county‐level data from 1970 through 2001 and a difference‐in‐differences econometric framework, exploiting only within‐state variation in banking deregulation, to distinguish the effect of an increase in bank competition from potential confounding factors. By including region‐by‐year fixed effects in our econometric equation, we compare changes in farm sales and expenditures in states that lift restrictions on interstate banking to changes in states that do not lift such restrictions within the same census region. Our estimates indicate that county‐level farm sales increase by about 3.4% and county‐level net farm income rises by $1.57 million (in 1982 dollars) after a state deregulates its banking sector by allowing interstate bank expansion. We also find evidence that farm expenditures, in particular expenditures on feed, fuel, machine and equipment rental, as well as interest payments, grew as a result of the banking deregulation. The positive impacts on farm sales, net income, and interest payments are larger in metropolitan counties than in rural counties, consistent with the notion that interstate bank entry following deregulation was concentrated in larger metropolitan markets, leading to a greater reduction in the cost of credit in those areas.

The dawn of an ‘age of deposits’ in the United States

Abstract Individual deposits in the United States grew from 5% to 23% of GDP between 1863 and 1913. A comprehensive database shows bank entry underlying this trend while historical events, including the National Banking Acts, resumption in 1879, and the election of 1896, influenced deposits at the bank-level. The nation's embrace of deposits was thus driven by stability of the monetary system and confidence in the safety and utility of established and well-capitalized banks. Bank-level and county-level regressions confirm these patterns for national banks over the entire postbellum period and for a sample of Midwest state and national banks from 1888.

Foreign banks and the business environment in transition: a cointegration approach

The contribution of foreign banks to the development of the financial sectors in emerging markets, and especially the transition economies of Central and Eastern Europe, is well-known. The purpose of this article is to focus on an area of foreign bank influence that has thus far only begun to emerge from the extant literature: the effect of foreign banks on the broader business environment in transition. In addition to improving financial intermediation and broader access to credit, has the presence of foreign financial institutions helped to shape a better business environment in the long-run? Or did foreign banks retard local institutional development and thus worsen the overall business environment? Using cointegration techniques across a sample of 21 diverse transition countries from 1983 to 2015, I find that foreign bank entry had a positive impact across business environment indicators, but with some indicators taking longer to influence than others. The policy implications are that business environments can be improved by facilitating foreign bank entry rather than restricting it.

외자은행 진입이 중국 은행 생산성에 미친 영향 분석 : 무수익여신 고려

외자은행 진입이 중국 은행 생산성에 미친 영향 분석 : 무수익여신 고려

Foreign Banks’ Entry and Local Banks’ Strategies in China

The opening of the Chinese banking sector encourages the entry of foreign banks through greenfield investment or cooperation with local banks. The entry strategies of foreign banks are therefore influenced by the strategies of local banks. This paper examines the interaction between local and foreign banks. The results demonstrate that the superior capabilities of foreign banks to liquidate collateral facilitate their greenfield investment. Otherwise, foreign banks will cooperate with local banks, whose cooperation depends on local banks’ self-development capability. Our results suggest that foreign banks are more likely to cooperate with large local banks in China unless small local banks have greater self-development capabilities.

Where Have Foreign Banks in Nigeria Gone? The Impact of Local Competitors on MNEs Strategic Choices and Outcomes

Privately owned Nigerian banks hold 94% of banking assets in Nigeria, the world's second largest share of local ownership, and the share had grown over time while it declined around the world. Theoretical explanations for the dominance of local firms related to liabilities of foreignness do not appear to apply to Nigeria banking industry; nor does the absence of pull factors that attract banks to Nigeria. To explain this puzzle we have adopted an exploratory study design, including extensive interviews with local and foreign banks in Nigeria and also examine Nigeria in regional and global perspectives. This exploration suggests that the entrepreneurial spirit of local banks, combined with nationalistic pride, have formed formidable barrier to the entry of foreign banks, deterring their entrance and undermining the market position of the few who entered. Nigeria government had played major role in this development, by instilling governance and ownership standards as well as by market structure and competition that have spurred the development of these capabilities. Such policy role signifies a distinct and unexplored means via which governments affect foreign entry and competitive dynamics after entry. We offer theoretical extensions to accommodate these features in the theory of the MNEs and outline implications for policy and firms. We highlight the merits of studying phenomena that are inconsistent with theories as an opportunity for theory extension and development.

Study on the Phenomenon of Bank Liquidity Tail

The entry of foreign banks, the spread of financial crisis, the marketization of interest rates and the impact of the point of time assessment lead to the phenomenon of bank liquidity tail, which has a negative impact on commercial banks, the financial system and the national economy. This paper is based on the current situation of the phenomenon of bank liquidity tail, analyzes the reasons of bank liquidity tail from two aspects of management and supervision system of bank liquidity, and proceed from the inner bank, the central bank's monetary policy, the external environment and so on, to find credit mismatches, credit term structure mismatch, the end of the month to pay the deposit reserve, the central bank focused on open market operations, the external macro environment are the main factors of bank liquidity tail. Therefore, this paper puts forward some countermeasures to solve the problem of bank liquidity from the perspective of liquidity supervision system, the bank's own management mode, the central bank credit rationing and the external environment change.