What factors cause foreign banks to stay in London?

The banking literature focuses extensively on the phenomenon of bank entry and pays less attention to the factors driving the continuation of banking activities in foreign markets. In this paper, we analyze this important, but overlooked, issue by constructing a unique database of foreign banks that continue operating and those that have withdrawn from arguably the world’s most international banking center—London. This new data set comprises information on 408 offices from 77 countries spanning the period from 1945 to 1999, giving us 4643 observations, of which 2795 represent offices that continue operating and 1848 that withdrew from London during this period. Our empirical work shows that the continuation of international banking activity in London is positively related to: the setup of locally integrated organizational forms at entry; the experience in the local market; and the size of local operations. Continuation of banking activities is however negatively related to the setup of organizational forms integrated into the parent bank at entry and to the geographic distance of the home-country to London. We also find that higher global economic activity increases the likelihood of international banking operations continuing in London; however, the more volatile the global economic environment, the greater the prospect of a cessation of this activity

Cost efficiency, determinants, and risk preferences in banking: A case of stochastic frontier analysis in the Philippines

This paper examines the cost efficiency of Philippine commercial banks using stochastic frontier analysis and specifically incorporating risk and asset quality measures in the estimation. Consistent with earlier findings, the results show substantial inefficiencies among domestic banks and that risk and asset quality affect the efficiency of banks. The substantial increase in the cost inefficiency could be attributed to the adverse effects of the 1997 Asian financial crisis and the subsequent costs of banking reforms and regulatory changes which were enacted to stabilize and strengthen the sector. Macroeconomic instabilities, particularly banking crisis, could have distorted the incentive structure for banks, making resource allocation to achieve efficiency a more difficult task. From a policy perspective, this study highlights the economic importance of encouraging increased efficiency in the banking sector by tapping the potential for significant improvements in the banks' cost efficiency.Stochastic frontier Cost efficiency Risk preferences Panel data Philippine commercial banks

The economic effects of foreign bank presence: Evidence from the Philippines

This study examines the economic effects of the liberalization of foreign bank entry in the Philippines from 1990 to 2006. The findings provide strong evidence on the dominance of competition effects from foreign bank presence which lead to the reduction in the profitability and overhead costs of domestic commercial banks. These findings, which reveal that both the actual market penetration and mere presence of foreign banks seem to exert competitive pressure to domestic banks, imply that foreign banks may serve as an effective competitive force, reducing the excess profits earned by domestic banks and compelling domestic banks to update their production technologies and techniques to improve their cost efficiency. From a policy perspective, the findings on competition effects of foreign banks in the domestic banking system justify the liberalization of foreign bank entry in the Philippines. The main findings demonstrate that the goal of banking liberalization in transforming domestic banks to be more competitive and efficient works considerably well in the case of the Philippines. Aside from the policy of easing the entry of foreign banks, bank-specific conditions can have significant impact on the performance of domestic banks. Therefore, a sustained improvement in the efficiency of domestic commercial banks requires not only liberalizing the entry of foreign banks, but also on continued strengthening of domestic prudential regulation and supervision on the commercial banking system.Foreign bank entry Competition effects Spillover effect Domestic commercial banks Philippines

Foreign bank entry in South East Asia

This paper examines the determinants of foreign bank entry in South East Asian countries after significant policy changes following the regional financial crisis in 1997/1998. The results show that manufacturing FDI and bilateral trade exert weak impacts on the decision of entry by foreign banks, providing little evidence for the argument that banks follow their home customers abroad. In contrast, local profit opportunities appear to be the prominent factor attracting foreign bank penetration in South East Asia. The results are robust to different modelling techniques