Foreign Bank Entry: Experience, Implications for Developing Economies, and Agenda for Further Research

Abstract

In recent years foreign banks have expanded their presence significantly in several developing economies. In Argentina and Chile in Latin America and in the Czech Republic, Hungary, and Poland in Eastern Europe, foreign-controlled banks now hold more than half of total banking assets. In other regions the trend is similar, though foreign bank entry has been slower. Despite the growing number of countries embracing foreign bank entry, important questions are still being debated: What draws foreign banks to a country? Which banks expand abroad? What do foreign banks do once they arrive? How do foreign banks' mode of entry and organizational form affect their behavior? This article summarizes current knowledge on these issues. Because the existing literature focuses heavily on developed economies, it also puts forth an agenda for further study of the causes and effects of foreign bank entry in developing economies.