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How banks go abroad : branches or subsidiaries (English)

The authors examine the factors that influence banks' type of organizational form when operating in foreign markets using an original database of the branches and subsidiaries in Latin America and Eastern Europe of the top 100 international banks. They find that regulation, taxation, the degree of desired penetration in the local market, and host-country economic and political risks matter. Banks are more likely to operate as branches in countries that have higher corporate taxes and when they face lower regulatory restrictions on bank entry, in general, and on foreign branches, in particular. Subsidiaries are the preferred organizational form by banks that seek to penetrate the local market establishing large and mostly retail operations. Finally, there is evidence that economic and political risks have opposite effects on the type of organizational form, suggesting that legal differences in the degree of parent bank responsibility vis-à-vis branches and subsidiaries under different risk scenarios play an important role in the kind of operations international banks maintain overseas

Details

  • Author

    Cerutti,Eugenio M., Dell'Ariccia, Giovanni, Martinez Peria,Maria Soledad

  • Document Date

    2005/10/01

  • Document Type

    Policy Research Working Paper

  • Report Number

    WPS3753

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    Latin America,

    South Eastern Europe and Balkans,

  • Region

    Europe and Central Asia, Latin America & Caribbean,

  • Disclosure Date

    2010/07/01

  • Disclosure Status

    Disclosed

  • Doc Name

    How banks go abroad : branches or subsidiaries ?

  • Keywords

    federal reserve bank of new york;restrictions on bank activity;foreign bank;organizational form;State Bank of India;Agricultural Bank of China;foreign bank operation;degree of penetration;country of origin;foreign bank entry;international commercial banks;investment profile;foreign bank participation;corporate tax rate;act of war;foreign exchange loss;data on assets;price and quality;local commercial bank;access to finance;local banking system;banking system asset;nested logit model;per capita income;emerging market economy;panel data analysis;impact of liberalization;canadian imperial bank;current account balance;fleet national bank;opaque small business;estimation of equation;domestic banking market;private sector credit;repatriation of profit;common legal origin;risk of expropriation;exchange rate stability;measure of investment;number of banks;sources of fund;mutual fund industry;real estate investment;annual inflation rate;law and regulation;political risk;foreign branch;foreign operation;foreign market;foreign subsidiary;large bank;risk matter;bank responsibility;banking sector;regulatory variable;standard error;Banking Regulation;standard deviation;bank size;selection bias;foreign asset;market opportunity;country risk;foreign control;asset share;composite index;macroeconomic environment;negative sign;retail bank;sample selection;political events;legal provision;high capital;reserve requirement;Fixed Assets;government intervention;exchange control;entry requirement;local market;Legal responsibility;individual variable;domestic institution;market concentration;cooperative bank;commonwealth bank;foreign presence;agricultural coop;securities underwriting;insurance underwriting;common language;empirical result;mortgage transaction;written statement;foreign debt;regulatory treatment;entry restriction;budget balance;direct investment;payment delays;individual bank;exclusion restriction;missing data;correlation coefficient;government control;competitive structure;shareholder data;corporate taxation;global asset;entry cost;empirical analysis;oecd countries;Economic Policy;open door;international operation;legal obligation;regional pattern;foreign shareholder;business opportunity;civil conflict;extreme circumstance;contractual arrangement;legal restriction;scale economy;lending behavior;expansion strategy;branch network;bank group;risk scenario;regulatory restriction;real gdp;local regulators;separate entity;niche market;bank asset;direct competition;banking service;trade finance;retail business;local network;corporate governance;risk measure;explanatory variable;financial projection;risk index;bank regulation;constant dollar;political crisis;future research;local subsidiary;organizational chart;retail market;financial distress;richer countries;policy perspective;cultural proximity;economic crisis;positive coefficient;foreign affiliate;civil strife;financial information;institutional factor;baseline regression;equity participations;alternative specification;political stability;civil unrest;colonial relationship;bilateral trade;

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Citation

Cerutti,Eugenio M. Dell'Ariccia, Giovanni Martinez Peria,Maria Soledad

How banks go abroad : branches or subsidiaries (English). Policy, Research working paper ; no. WPS 3753 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/987611468116040640/How-banks-go-abroad-branches-or-subsidiaries