Abstract

PAULA, Luiz Fernando de  and  ALVES JR., Antonio José. The Determinants and Effects of Foreign Bank Entry in Argentina and Brazil: A Comparative Analysis. Inv. Econ [online]. 2007, vol.66, n.259, pp.63-102. ISSN 0185-1667.

This paper aims at analyzing the recent experience of foreign bank entry in Argentina and Brazil, focusing in its determinants and effects. It shows that the experience of foreign bank entry in Argentina and Brazil has not contributed effectively to the improvement of the macroeconomic efficiency of the financial system. The expected results of foreign bank entry -more diversified portfolio with predominance of credit operations, greater efficiency and enhancement of the soundness of the financial system- did not materialize in Argentina and Brazil. In both countries foreign banks behavior was similar to domestic private banks, in terms of portfolio allocation, credit policy, etc., although in Argentina there issome evidence that in tranquil times foreign bank entry contributed to the enhancement of the financial system. Argentina's case also illustrates that the presence of international banks is not enough to prevent local banking crises and sizable losses for depositors. In the case of Brazil, contrasting with Argentinean experience, domestic private banks reacted positively to foreign bank penetration, expanding their activities organically or by mergers and acquisitions, as they accumulated capabilities to survive in an environment of macroeconomic instability and were less affected by the 1994-1995 crisis than domestic banks in Argentina.

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