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Foreign Banks and Credit Volatility: The Case of Latin American Countries
Author(s) -
Haouat Meriem,
Moccero Diego N.,
Sosa Navarro Ramiro
Publication year - 2012
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12010
Subject(s) - volatility (finance) , diversification (marketing strategy) , latin americans , economics , panel data , monetary economics , financial system , business , finance , linguistics , philosophy , marketing , econometrics
The number of foreign banks in Latin America increased substantially over the period 1995–2001, prompting a debate on the potential consequences for host countries. Discussions focused on efficiency, the impact on competition and product market diversification in the banking industry, and the quality of the regulatory environment, among other issues. Against this background, this paper uses ARCH techniques to test the impact of foreign banks on both the level and the volatility of real private bank credit in a panel of eight Latin American countries, using quarterly data over the period 1995–2001. The empirical findings show that, together with financial development, the presence of foreign banks has contributed to reducing real credit volatility, improving the buffer shock function of the banking sector.