Challenges Facing Global Financial Markets

The major presence of international firms in financial markets has made an important contribution to stability in domestic banking systems in a number of emerging-market economies. Argentina is a case in point. More than half of Argentina’s banking system now comprises large international institutions. This helped to build confidence in the banking system, which in turn helped to avoid a run on bank deposits after the Russian and Brazilian crises comparable to that following Mexico’s 1995 crisis. In view of the critical role that weak domestic banking systems played in the East Asian crisis, Argentina’s experience suggests that increased openness in financial services can play a major role in stabilizing the domestic banking system.