Asymmetric Financial Integration Bank Ownership and Monetary Policy in Emerging Economies

Over the last 30 years cross-country financial integration has increased significantly. In this process many banks in developing and transition economies became foreign-owned. Using a panel data on banks in eleven Central and Eastern Europe economies we provide new evidence that foreign-owned banks react differently to monetary policy changes than domestic-owned banks not only during financial crises but also in normal times. We embed bank heterogeneity in a stylized DSGE model featuring monopolistic competition in the banking sector and show that such a pattern may be driven not only by a facilitated access to internal market within the financial conglomerate they belong to but also by their competitive advantages. While the first mechanism leads to a decrease of the responsiveness of the banking sector to the monetary policy, the second mechanism does not.