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### Main purpose and contributions
- Introduces a new and comprehensive database on bank ownership covering 5377 banks in 137 countries from 1995 to 2009, with home countries from 111 home countries.
- Documents year-by-year ownership (domestic versus foreign) for each bank active in the sample period, recording all changes in ownership and all exits.
- Identifies the home country of the main investor of each bank to enable bilateral ownership analysis.
- Provides salient facts on trends in foreign ownership, compares foreign and domestic bank characteristics, and analyzes relationships between foreign bank presence and financial development and lending stability during the recent crisis.

### Key factual findings and magnitudes
- Market shares (end-2007): foreign banks capture on average 20 percent of market shares in OECD countries and close to 50 percent in emerging markets and developing countries (in terms of loans, deposits and profits).
- Aggregate sample counts and shares (1995→2009):
  - Total number of banks in sample: 3894 in 1995 and 3910 in 2009.
  - Number of domestic banks decreased by about 17 percent over the period.
  - Number of foreign banks increased by 72 percent over the period.
  - Foreign banks increased their share of banks from 20 percent in 1995 to 34 percent in 2009.
  - Number of foreign banks present: 774 in 1995 and 1334 in 2009.
- Median foreign bank presence increased from 17 percent in 1995 to 40 percent in 2009.
- Countries with no foreign bank presence: 19 in 1995 and 11 in 2009 (Cuba, Ethiopia, Haiti, Iceland, Iran, Libya, Oman, Qatar, Saudi Arabia, Sri Lanka and Yemen).
- Countries where foreign ownership exceeded 50 percent: 18 percent of countries in 1995; 42 percent of countries (54 countries) in 2009.
- Countries with over 90 percent of banks foreign-owned in 2009: Burkina Faso, Hungary, Luxembourg, Madagascar, Mozambique and Zambia.
- Growth in number of foreign banks by host income group (1995–2009):
  - OECD: 40 percent growth.
  - Other high-income countries: 38 percent growth.
  - Emerging markets: 72 percent growth.
  - Developing countries: 122 percent growth.
- Regional growth highlights:
  - Eastern Europe and Central Asia: 225 percent growth.
  - South Asia: 120 percent growth (foreign bank penetration in 2009 was 14 percent).
  - North America and Western Europe home banks represented 63 percent of all foreign banks in 2009 (down from 66 percent in 1995).
- Home-country breadth:
  - Number of home countries active as foreign investors: 77 in 1995 and 99 in 2009.
  - Share of foreign banks from emerging market and developing country home countries increased to 27 percent by 2009.
- Foreign ownership concentration:
  - Five biggest investors (France, Germany, the Netherlands, the United Kingdom and the United States) owned 45 percent of all foreign banks in 1995 and 38 percent in 2009.
- Aggregate vs country-average importance (2007):
  - Aggregate (group-based): foreign banks account for 12 percent of total lending, 11 percent of total deposit taking, and 15 percent of total profits.
  - Country-average (simple average over 129 countries): foreign banks are responsible for 41 percent of lending, 40 percent of deposit taking, and 42 percent of profits.
- Income-group averages (2007):
  - Emerging markets: loan, deposit and profit shares close to 45 percent.
  - Developing countries: loan, deposit and profit shares close to 50 percent.
  - OECD countries: foreign bank loan, deposit and profit shares on average about 20 percent.

### Differences in balance sheets and performance (2007)
- Balance-sheet comparisons (all countries combined):
  - Foreign banks have lower loan to asset ratios than domestic banks.
  - Loan to deposits ratio on average higher for domestic banks.
  - Foreign banks have more liquid assets than domestic banks (except in other high-income countries).
  - Foreign banks tend to be less leveraged (lower ratio of capital to unweighted assets) and have higher capital ratios (capital to risk-weighted assets) than domestic banks.
  - In emerging markets, foreign banks have similar leverage but higher capital adequacy ratios (implying lower risk weights).
  - In other high-income countries and emerging markets, foreign banks tend to provision less for bad loans.
- Performance:
  - Foreign banks tend to underperform domestic banks in emerging market and developing countries.
  - No systematic performance difference detected in high-income countries.

### Cross-section evidence on foreign banks and domestic credit (2005–2007 averages)
- Empirical setup:
  - Dependent variable: private credit to GDP averaged over 2005-2007.
  - Main regressor: share of foreign bank assets over total assets (measured in 2004).
  - Controls: GDP per capita (2004), inflation (2004), creditor information, enforcement time (World Bank Doing Business indicators, 2004).
  - Estimation: OLS with robust standard errors, sample of 111 countries.
- Main results:
  - Pooled sample: negative correlation between foreign bank presence and private credit to GDP.
    - A one standard deviation increase in the share of foreign banks is associated with a decline in private credit by some 6 percentage points. Mean private credit to GDP in sample: 50 percent.
  - Heterogeneity by income group:
    - OECD countries and emerging markets: no significant relationship.
    - Developing countries: strong negative relationship—one standard deviation increase in foreign bank share associated with a decline in private credit of 5 percentage points; mean private credit to GDP in this group is 19 percent.
- Controls and interactions:
  - Inflation generally associated with less financial sector development (except OECD).
  - Creditor information positive and significant in developing countries.
  - Longer enforcement time associated with less credit in emerging markets and developing countries.
  - No evidence that better creditor information or shorter enforcement time mitigates the negative association of foreign bank presence with private credit.

### Panel evidence on foreign banks and lending stability during the global financial crisis (2005–2009)
- Sample and dependent variable:
  - Panel 2005–2009, 118 countries with at least one foreign bank; final sample excludes banks entering/exiting and comprises 3,615 banks (1,198 foreign).
  - Dependent variable: loan growth = log difference in total lending (net loans + loan loss reserves).
- Key regression setup:
  - Key regressor: foreign bank dummy interacted with year dummies (distinguishing 2008 and 2009).
  - Controls: bank fixed effects, country-year fixed effects, bank characteristics measured end-2007 (size = log assets, solvency = equity to asset ratio, liquidity = liquid to total assets, deposits = deposits to liabilities).
  - Estimation: OLS with clustering at bank level; observations outside 1st and 99th percentiles of loan growth excluded.
- Main results (Table 7 highlights):
  - Foreign banks reduced lending in 2009 by some 6 percentage points more compared to domestic banks: Foreign*2009 = -0.061***. Mean credit growth in 2009 = 5 percent.
  - No significant difference in 2008 between foreign and domestic banks in base regression (Foreign*2008 not significant in column 1).
- Bank-characteristic interactions:
  - Deposit funding:
    - A one standard deviation increase in the deposit to liability ratio implies loan growth in 2009 was some 4 percentage points higher.
    - Deposit impacts larger for foreign banks: one standard deviation increase in deposits increases credit growth of domestic banks by some 3 percentage points, and by 7 percentage points for foreign banks (Table 7, column 6: Foreign bank * 2009 * Deposits = 0.185***; Deposits * 2009 = 0.156***).
  - Size: larger banks reduced credit more (Size*2008 and Size*2009 negative and sometimes significant).
  - Solvency and liquidity: more solvent and more liquid banks maintained credit more; solvency effects larger in 2008 than in 2009. Liquidity effects significant in both years.
- Host-country heterogeneity:
  - OECD vs non-OECD hosts:
    - In 2008, foreign banks in OECD reported lower growth compared to domestic banks: Foreign*2008*OECD country = -0.066*.
    - In 2009, foreign banks reduced lending compared to domestic banks similarly in OECD and non-OECD countries.
  - Market-share heterogeneity:
    - In countries where foreign banks represent less than 50 percent of banking assets (low market share), foreign banks’ loan growth compared to domestic banks is 8 percent less.
    - In countries where foreign banks dominate (majority foreign), foreign banks have a 1 percent higher loan growth compared to domestic banks (interaction Foreign*2009*Majority foreign = 0.094**; joint test significant).
- Home-country heterogeneity:
  - No significant difference between foreign banks owned by parents in OECD vs non-OECD home countries.
  - Foreign banks with parents that experienced a systemic banking crisis during 2007-2009 tended to reduce lending more in both 2008 and 2009 compared to domestic banks, though estimates are imprecise (Foreign*2008*Crisis home = -0.047; Foreign*2009*Crisis home = -0.029, not significant).
- Interpretation:
  - On average, foreign banks reduced lending more than domestic banks during the global crisis, indicating they contributed to financial instability.
  - Important heterogeneity: when foreign banks dominate a banking system they were a more stable source of credit than domestic banks; foreign banks with a large local deposit base were much less likely to reduce lending.

### Mechanisms and conditional factors
- Documented benefits attributed to foreign banks prior to the crisis:
  - Increased competition, greater access to financial services, improved performance of borrowers, and greater financial stability.
- Documented channels:
  - Lower costs of financial intermediation (margins, spreads, overheads), lower profitability, better loan-loss provisioning, introduction of new products, updated technologies, know-how spillovers, pressure for better regulation and supervision.
- Conditions affecting effects:
  - Limited general development and barriers can hinder foreign banks’ effectiveness.
  - Relative size of foreign banks’ presence matters (possible threshold effects): limited entry yields fewer spillovers.
  - Larger foreign banks more likely associated with greater effects on access for small and medium-sized enterprises; smaller banks more niche players.
  - Health of home and host operations matters for credit growth; healthier banks show better credit growth.
- Potential negative effects:
  - “Cherry picking” by foreign banks can undermine access and reduce overall credit, especially in low-income countries reliant on relationship lending.
  - Funding shocks at parent banks can be transmitted to foreign subsidiaries, reducing lending.

### Database construction, sample design and key procedural points
- Coverage: 1995-2009 year-by-year for all banks active at least one year in the period.
- Bank types included: commercial banks, savings banks, cooperative banks, bank holdings, and holding companies.
- Sources used: Bankscope, banks’ annual and corporate governance reports, central bank publications and websites, regulatory agencies, stock exchanges, US SEC forms F-20, parent company reports, The Economist Intelligence Unit, Factiva, The Banker, etc.
- Entry/exit dating:
  - Year of establishment used when available; when only evidence of existence prior to 1995 was found, coded as 1500 (fictive year of establishment).
  - Exit generally taken as the year a bank became inactive in Bankscope, cross-checked with additional sources.
- Mergers and acquisitions:
  - Entry/exit and M&A information mostly obtained from Bankscope.
  - Pre-merger banks included until the merger year; the new merged entity included from the merger year onward; acquired banks coded inactive after acquisition year.
- Sample construction and coverage specifics:
  - Sample includes all countries with more than 5 active banks reporting to Bankscope in 2008.
  - For advanced countries coverage is restricted to the 100 largest banks in terms of 2008 assets.
  - For all covered countries, at least 90 percent of the banking system is covered in terms of assets.
  - Bank holding companies excluded when both holding company and bank are represented to avoid double counting.
  - For 134 banks (2.5 percent of the sample) the exact year of establishment could not be determined; these years left blank.
  - Offshore banking centers excluded: Antigua and Barbuda, Bahrain, Barbados, Cyprus, Mauritius, Panama, Seychelles and Singapore.
  - Total comparisons cover 129 countries.
- Ownership coding and definitions:
  - A bank is defined as foreign-owned if 50 percent or more of its shares are owned by foreigners.
  - Ownership and country of ownership are based on direct ownership; indirect ownership is not considered.
  - When direct owners are entities established for tax purposes, the country of nationality of the ultimate owner is recorded as the source country.
  - When shareholders from multiple foreign countries hold shares, the country with the highest percentage of shares held by foreigners is designated the home country.
  - Block shareholdings only are considered when ownership is via capital markets and shareholder nationality is anonymous.
  - In cases of unreliable information, ownership was reported as missing.
- Coverage of ownership information:
  - For 5059 of the 5377 banks in the sample (94 percent), complete ownership structure, including the home country of the largest foreign shareholder, was determined for all years the bank was active.
  - For 92 banks only partial ownership information was available.
  - For 226 banks no ownership could be determined.

### The future of foreign banking (short- and medium-term outlook)
- Short-run projections:
  - New foreign investment from crisis-affected countries likely limited until their banking systems stabilize.
  - Late 2011 evidence: foreign banks started to sell some foreign subsidiaries due to capital shortfalls.
  - Emerging market banks are well-positioned to seize opportunities:
    - Generally low loan-to-deposit ratios (stable deposit funding).
    - Many have capital ratios well above banks in advanced countries.
    - Basel III likely less costly for these banks (typically lower risk weighted assets).
    - Many emerging market banks are highly profitable, providing buffers for investment.
  - Overall foreign bank investment likely to remain subdued in coming years and below levels witnessed between 1995 and 2007.
- Medium-term outlook:
  - Emerging markets likely to increase foreign investment; banks from emerging markets account for about 30 percent of all foreign investments.
  - Expansion by emerging market banks likely to be mostly regional.
  - Empirical support: 70 percent of all foreign entry by emerging market banks was within their own geographical region.

### Policy issues, questions and reforms highlighted
- Research and policy questions:
  - For which types of countries and under which circumstances do foreign banks most improve domestic financial development?
  - Which institutions are most important to improve when foreign bank presence is greater?
  - When does foreign bank presence help mitigate shocks versus amplify risks?
  - How do foreign bank type (country of origin, size, degree of international operations, distance between home and host) and relative presence affect their roles in development and stability?
  - Which balance sheet and performance indicators are most important to monitor for assessing foreign banks’ role in domestic intermediation?
- Policy reforms under discussion:
  - Specific financial, disclosure or corporate governance requirements for foreign banks.
  - Optimal degree of separation/segmentation of international from domestic activities (e.g., subsidiarization, ring-fencing).
  - Modalities for international liquidity and lender-of-last-resort facilities to mitigate cross-border turmoil.
  - Optimal institutional framework and burden sharing for resolution of cross-border banks.

### Appendix data highlights (selected country- and asset-share series)
- Appendix Table 1 (percentage of foreign banks among total banks, 1995–2009):
  - TOTAL (aggregate): 21, 22, 23, 25, 26, 27, 28, 29, 29, 30, 31, 32, 34, 35, 35 (1995–2009).
  - Luxembourg series (1995–2009): 98 98 99 99 99 99 99 99 99 99 99 99 99 99 99.
  - United Kingdom series (1995–2009): 42 45 46 47 48 48 48 49 51 53 54 54 56 57 57.
  - United States series (1995–2009): 15 16 16 15 17 19 21 21 21 23 24 24 27 29 32.
  - India series (1995–2009): 6 7 7 8 8 8 8 9 9 9 10 11 12 12 12.
  - Notable zeros / repeated zeros: Iran reported as 000000000000000 across 1995–2009 in the table; similar repeated zeros for Libya, Oman, Yemen, Sri Lanka, Ethiopia, Cuba, Haiti where shown.
- Appendix Table 2 (percentage of foreign bank assets among total bank assets, 2004–2009 only; reported only when Bankscope asset information available for >60 percent of banks in country-year):
  - Trinidad & Tobago (2004–2009): 13 13 13 14 56 54.
  - Luxembourg (2004–2009): 100 100 100 95 96 95.
  - United Kingdom (2004–2009): 9 12 12 14 19 15.
  - United States (2004–2009): 20 20 21 23 19 18.
  - Madagascar (2004–2009): 100 100 100 100 100 100.
- Data and formatting notes from appendix:
  - Appendix Table 2 restricts asset-share reporting to 2004 onward due to Bankscope coverage constraints (more than 60 percent bank coverage condition).
  - Some country rows in Appendix Table 1 contain contiguous digits without separators reflecting the original table layout; some cells display dots "...." or partial entries (e.g., China "......221") indicating incomplete or partially formatted reporting in the source table.

*Source: IMF working paper (excerpt provided).*

### 1. Number of Banks by Host Country, Aggregates by Income Level and Region ..................22

### 1. Number of Banks by Host Country, Aggregates by Income Level and Region ..................22

### Main purpose and contributions
- Introduces a new and comprehensive database on bank ownership covering 5377 banks in 137 countries from 1995 to 2009, with home countries from 111 home countries.
- Documents year-by-year ownership (domestic versus foreign) for each bank active in the sample period, recording all changes in ownership and all exits.
- Identifies the home country of the main investor of each bank to enable bilateral ownership analysis.
- Provides salient facts on trends in foreign ownership, compares foreign and domestic bank characteristics, and analyzes relationships between foreign bank presence and financial development and lending stability during the recent crisis.

### Key factual findings and magnitudes
- In terms of loans, deposits and profits, foreign banks capture on average 20 percent of market shares in OECD countries and close to 50 percent in emerging markets and developing countries (as of end-2007).
- Foreign bank presence increased substantially in most countries over the two decades, sometimes from none to foreign banks holding 67 percent market share (in terms of numbers) in a single decade.
- Foreign ownership ranges across countries from zero to 100 percent (in numbers).
- Foreign ownership is mostly regional, and this regional pattern became stronger over time.
- Foreign banks generally have higher capital adequacy and better liquidity positions and engage relatively less in traditional lending businesses.
- Foreign banks underperform domestic banks in emerging markets and developing countries, but do not perform differently in high-income countries.
- In middle-income and high-income host countries, foreign bank presence tends to have an insignificant relationship with credit extended; in low-income countries, foreign bank presence is associated with less credit extended.
- During 2009 (the crisis period), foreign banks generally reduced their domestic credit more than domestic banks did; however, in countries with majority foreign bank presence, foreign banks’ credit growth declined less than that of domestic banks.

### Mechanisms and conditional factors highlighted
- Documented benefits attributed to foreign banks prior to the crisis: increased competition, greater access to financial services, improved performance of borrowers, and greater financial stability.
- Documented channels: lower costs of financial intermediation (margins, spreads, overheads), lower profitability, better loan-loss provisioning, introduction of new products, updated technologies, know-how spillovers, pressure for better regulation and supervision.
- Effects depend on host-country conditions:
  - Limited general development and barriers can hinder foreign banks’ effectiveness.
  - The relative size of foreign banks’ presence matters (possible threshold effects): limited entry yields fewer spillovers.
  - Larger foreign banks more likely associated with greater effects on access for small and medium-sized enterprises; smaller banks more niche players.
  - Health of home and host operations matters for credit growth; healthier banks show better credit growth.
- Potential negative effects:
  - “Cherry picking” by foreign banks can undermine access and reduce overall credit, especially in low-income countries reliant on relationship lending.
  - Funding shocks at parent banks can be transmitted to foreign subsidiaries, reducing lending.

### Crisis-era evidence and heterogeneity
- Some studies find foreign subsidiaries reduced lending more than domestic banks during the global financial crisis for emerging Europe and other regions.
- Other studies find parent banks supported foreign affiliates through internal capital markets; foreign banks may differentiate by country (e.g., continue lending to geographically close or long-term relationship countries).
- During the crisis, advanced-country banks faced losses and capital shortfalls, restructuring, and stricter regulation (e.g., Basel III); banks from emerging markets were better positioned to expand as foreign investors, especially regionally.

### Database construction and methodology (key procedural points)
- Coverage: 1995-2009 year-by-year for all banks active at least one year in the period.
- Bank types included: commercial banks, savings banks, cooperative banks, bank holdings, and holding companies.
- Sources used: Bankscope, banks’ annual and corporate governance reports, central bank publications and websites, regulatory agencies, stock exchanges, US SEC forms F-20, parent company reports, The Economist Intelligence Unit, Factiva, The Banker, etc.
- Entry/exit dating:
  - Year of establishment used when available; when only evidence of existence prior to 1995 was found, coded as 1500 (fictive year of establishment).
  - Exit generally taken as the year a bank became inactive in Bankscope, cross-checked with additional sources.
- Mergers and acquisitions handled by recording merged/acquiring entities’ activity appropriately: pre-merger banks included until the merger year, the new merged entity included from the merger year onward; acquired banks coded inactive after acquisition year.

### Structure of the paper (content outline)
- Section 2: construction of the database (detailed description).
- Section 3: overview of main trends in foreign banking and regionalization of foreign bank presence.
- Section 4: importance of foreign banks in host systems; balance sheets and performance comparison; evidence on foreign bank presence and financial sector development.
- Section 5: impact of foreign bank ownership on lending stability during the global financial crisis.
- Section 6: future of foreign banking, including rising importance of emerging market foreign banks.
- Section 7: conclusions.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp1210.pdf*

### 2000. Information on mergers and acquisitions was mostly obtained from Bankscope. Again,

### _wp1210 - 2000. Information on mergers and acquisitions was mostly obtained from Bankscope. Again,

### Data, sample construction, and coverage
- Sample includes all countries with more than 5 active banks reporting to Bankscope in 2008.
- For advanced countries in the sample, coverage is restricted to the 100 largest banks in terms of 2008 assets; smaller (typically regional) banks are not included for these countries.
- For all covered countries, at least 90 percent of the banking system is covered in terms of assets.
- Bank holding companies: when both a holding company and the bank itself were represented in Bankscope, the holding company was excluded to avoid potential double counting.
- For 134 banks (2.5 percent of the sample) the exact year of establishment could not be determined; in these cases the year of establishment is left blank.
- Offshore banking centers excluded from analysis: Antigua and Barbuda, Bahrain, Barbados, Cyprus, Mauritius, Panama, Seychelles and Singapore.
- Total comparisons cover 129 countries.

### Ownership coding and definitions
- A bank is defined as foreign-owned if 50 percent or more of its shares are owned by foreigners.
- Ownership and country of ownership are based on direct ownership; indirect ownership is not considered.
- When direct owners are entities established for tax purposes, the country of nationality of the ultimate owner is recorded as the source country (examples include entities registered in Mauritius, Panama and Luxembourg).
- When shareholders from multiple foreign countries hold shares, the country with the highest percentage of shares held by foreigners is designated the home country.
- Block shareholdings only are considered when ownership is via capital markets and shareholder nationality is anonymous.
- In cases of unreliable information, ownership was reported as missing.

### Coverage of ownership information
- For 5059 of the 5377 banks in the sample (i.e., 94 percent), complete ownership structure, including the home country of the largest foreign shareholder, was determined for all years the bank was active.
- For 92 banks only partial ownership information was available.
- For 226 banks no ownership could be determined.
- Overall, the database provides an almost complete picture of bank ownership around the world and changes over time.

### Aggregate trends in foreign banking (1995–2009)
- Total number of domestic and foreign banks in the sample: 3894 in 1995 and 3910 in 2009.
- Number of domestic banks decreased by about 17 percent over the period.
- Number of foreign banks increased by 72 percent over the period.
- Foreign banks increased their share of banks from 20 percent in 1995 to 34 percent in 2009.
- Number of foreign banks present: 774 in 1995 and 1334 in 2009.
- Entry and exit dynamics:
  - Foreign bank investment activity was especially high in the late 1990s and early 2000s and again in 2006-2007.
  - 2001 had 48 banks exiting, mostly due to financial crises affecting emerging markets and consolidation trends.
  - Entry peaked in 2007 but slowed markedly after the global financial crisis; 2008 saw entries at levels similar to 2005, while 2009 had the lowest number of entries since the start of the sample period.
  - Exit levels remained similar to earlier periods through 2009; many parent banks did not close or sell foreign affiliates up to 2009.

### Income-group and regional patterns
- Country grouping:
  - OECD: all core OECD countries.
  - Other high-income countries (OHI): countries classified as high-income by the World Bank in 2000 but not belonging to the OECD.
  - Emerging markets (EM): countries in the Standard and Poor’s Emerging Market and Frontier Markets indexes and not high-income in 2000.
  - Developing countries (DEV): all other countries.
- Distribution of foreign banks by host country group (numbers are percent of all foreign banks):
  - 1995: OECD 31 percent, OHI 4 percent, EM 43 percent, DEV 23 percent.
  - 2009: OECD 25 percent, OHI 3 percent, EM 43 percent, DEV 29 percent.
- Foreign banks as share of host banking systems (percent of total number of banks present):
  - 1995: OECD 19 percent, OHI 30 percent, EM 18 percent, DEV 24 percent.
  - 2009: OECD 24 percent, OHI 41 percent, EM 36 percent, DEV 46 percent.
- Distribution shift: median foreign bank presence increased from 17 percent in 1995 to 40 percent in 2009.
- Number of countries with no foreign bank presence:
  - 1995: 19 countries.
  - 2009: 11 countries (Cuba, Ethiopia, Haiti, Iceland, Iran, Libya, Oman, Qatar, Saudi Arabia, Sri Lanka and Yemen).
- Countries where foreign ownership exceeded 50 percent:
  - 1995: in 18 percent of countries.
  - 2009: in 42 percent of countries (54 countries).
- Countries with over 90 percent of banks foreign-owned in 2009: Burkina Faso, Hungary, Luxembourg, Madagascar, Mozambique and Zambia.

### Growth rates by income group and region (1995–2009)
- Growth in number of foreign banks by host country income group:
  - OECD: 40 percent growth.
  - Other high-income countries: 38 percent growth.
  - Emerging markets: 72 percent growth.
  - Developing countries: 122 percent growth.
- Regional growth highlights:
  - Eastern Europe and Central Asia: 225 percent growth (highest).
  - South Asia: 120 percent growth (but foreign bank penetration in 2009 was only 14 percent).
  - Latin America: strong growth early in the period, followed by exits after 1999; renewed surge starting in 2006.
- Home-country patterns:
  - Banks from North America and Western Europe represented 63 percent of all foreign banks in the sample in 2009 (down from 66 percent in 1995).
  - Number of foreign banks owned by OECD home countries grew by 61 percent over the sample period.
  - Number of foreign banks owned by other high-income countries, emerging markets and developing countries grew by 115 percent, 90 percent and 103 percent respectively.
  - Share of foreign banks from emerging market and developing country home countries increased to 27 percent by 2009.
  - Regional outward investment growth:
    - Eastern Europe and Central Asia increased investments abroad by 240 percent and owned 85 foreign banks by 2009.
    - Sub-Saharan Africa outward investments increased by 179 percent.
    - Middle East and Northern Africa outward investments increased by 134 percent.
    - Latin American banks saw a slight decrease in outward investments.
- Number of home countries active as foreign investors:
  - 1995: 77 home countries.
  - 2009: 99 home countries.
- Number of emerging market/developing home countries owning foreign banks:
  - 1995: 46 countries.
  - 2009: (number increases; exact 2009 count beyond 46 is indicated but not fully specified in the supplied excerpt).

*Source: IMF working paper content (excerpt provided).*

### 61. As a result, foreign ownership has become less concentrated. In 1995 the five biggest

### _wp1210 - 61. As a result, foreign ownership has become less concentrated. In 1995 the five biggest

### C. Globalization and Regional Integration
- Foreign ownership concentration:
  - In 1995 the five biggest investors (France, Germany, the Netherlands, the United Kingdom and the United States) owned 45 percent of all foreign banks.
  - By 2009, this percentage has dropped to 38 percent.
- Regional concentration of foreign bank entry:
  - Splitting countries into four regions (America, Asia, Europe, Middle East and Africa), in both 1995 and 2009 the share of foreign banks coming from countries within each region is always more than 50%.
  - The highest intraregional share is for Middle East and Africa: more than 70%.
  - Intraregional share changes 1995→2009: Asia increased by some 9 percentage points; Europe increased by some 11 percentage points.
- Home-country type and regional patterns:
  - Over 70 percent of investments from emerging markets and developing countries tend to be within their own region.
  - Banks from advanced countries have become less regional and more global over time.
  - Banks from emerging markets and developing countries have become more regional.

### IV. Importance of Foreign Banks, Their Behavior and Impact on Domestic Systems
A. Relative Importance of Foreign Banks
- Cross-country variation:
  - Foreign bank presence in numbers and in assets ranges from 0 to 100 percent across countries.
  - Correlation between number share and asset share is high; but:
    - Only in 33 percent of cases when foreign bank share in numbers is less than 50 percent does the asset share exceed the number share.
    - In 54 percent of cases when foreign bank share in numbers is over 50 percent does the asset share exceed the number share.
  - Interpretation: when less important in numbers, foreign banks tend to be niche; when dominant in numbers, they tend to have larger operations.
- Aggregate and country-average importance (2007):
  - Aggregate (group-based, summing over countries): foreign banks account for 12 percent of total lending, 11 percent of total deposit taking, and 15 percent of total profits.
  - Average across countries (simple average over 129 countries): foreign banks are responsible for 41 percent of lending, 40 percent of deposit taking, and 42 percent of profits.
- Differences by income group (2007 averages):
  - Emerging markets: loan, deposit and profit shares close to 45 percent.
  - Developing countries: loan, deposit and profit shares close to 50 percent.
  - OECD countries: foreign bank loan, deposit and profit shares on average about 20 percent.

B. Differences in Balance Sheets and Performance between Foreign and Domestic Banks (2007)
- Balance sheet and profitability patterns (high-level):
  - All countries (combined):
    - Foreign banks have lower loan to asset ratios than domestic banks.
    - Loan to deposits ratio on average higher for domestic banks.
    - Foreign banks have more liquid assets than domestic banks (except in other high-income countries).
    - Foreign banks tend to be less leveraged (lower ratio of capital to unweighted assets) and have higher capital ratios (capital to risk-weighted assets) than domestic banks.
    - In emerging markets, foreign banks have similar leverage but higher capital adequacy ratios (implying lower risk weights).
    - In other high-income countries and emerging markets, foreign banks tend to provision less for bad loans.
  - Country-group exceptions:
    - In emerging markets foreign banks have higher loan to asset ratios (reverse of all-countries result).
    - In emerging markets foreign banks tend to have higher loan to deposits ratios than domestic banks.
- Performance:
  - Foreign banks tend to underperform domestic banks in emerging market and developing countries.
  - Possible explanations include more conservative portfolios, differences in origin of foreign banks, and host/home institutional factors (e.g., home country income, shared language, similarity in regulation).

C. Foreign Banks and Domestic Credit Creation (cross-section, 2005–2007 averages)
- Empirical setup:
  - Dependent variable: private credit to GDP averaged over 2005-2007.
  - Main regressor: share of foreign bank assets over total assets (measured in 2004).
  - Controls: GDP per capita (2004), inflation (2004), creditor information, enforcement time (both from World Bank Doing Business indicators, 2004).
  - Estimation: OLS with robust standard errors, sample of 111 countries.
- Key findings:
  - Pooled sample: negative correlation between foreign bank presence and private credit to GDP (Table 6, column 1).
    - A one standard deviation increase in the share of foreign banks is associated with a decline in private credit by some 6 percentage points.
    - Mean private credit to GDP in sample: 50 percent.
  - Non-linear relationship evidence (column 2) largely driven by outliers (Hong Kong, Ireland, New Zealand, Iceland).
  - Heterogeneity by income group:
    - OECD countries and emerging markets: no significant relationship between foreign ownership and credit.
    - Developing countries: strong negative relationship. A one standard deviation increase in foreign bank share is associated with a decline in private credit of 5 percentage points; mean private credit to GDP in this group is 19 percent.
- Other controls:
  - Inflation generally associated with less financial sector development (except OECD).
  - Creditor information generally not significant, but positive and significant in developing countries.
  - Longer enforcement time associated with less credit in emerging markets and developing countries.
- Interactions:
  - Interaction of creditor information and foreign bank presence: no evidence that better hard information reduces the negative impact of foreign presence.
  - Interaction of enforcement time and foreign presence: no evidence of mitigating effect.

### V. Foreign Banks and Financial Stability during the Global Financial Crisis (panel 2005–2009)
- Sample and setup:
  - Panel from 2005–2009, 118 countries with at least one foreign bank, excluding banks entering or exiting during period; final sample: 3,615 banks (1,198 foreign).
  - Dependent variable: loan growth = log difference in total lending (net loans + loan loss reserves) of bank i in country j in year t.
  - Key regressor: foreign bank dummy interacted with year dummies (distinguishing 2008 and 2009).
  - Controls: bank fixed effects, country-year fixed effects, bank characteristics measured end-2007 (size = log assets, solvency = equity to asset ratio, liquidity = liquid to total assets, deposits = deposits to liabilities). Observations outside 1st and 99th percentiles of loan growth excluded.
  - Estimation: OLS with clustering at bank level.
- Main results (Table 7):
  - Base result: foreign banks reduced lending in 2009 by some 6 percentage points more compared to domestic banks (Foreign*2009 = -0.061***). Mean credit growth in 2009 = 5 percent.
  - No significant difference in 2008 between foreign and domestic banks in base regression (Foreign*2008 not significant in column 1).
- Bank-characteristic controls and effects:
  - Deposit funding:
    - A one standard deviation increase in the deposit to liability ratio implies loan growth in 2009 was some 4 percentage points higher (deposit-related effect).
    - Interaction results: deposit impacts larger for foreign banks: one standard deviation increase in deposits increases credit growth of domestic banks by some 3 percentage points, and by 7 percentage points for foreign banks (Table 7, column 6: Foreign bank * 2009 * Deposits = 0.185***; Deposits * 2009 = 0.156***).
  - Size: larger banks reduced credit more (Size*2008 and Size*2009 negative and sometimes significant).
  - Solvency and liquidity: more solvent and more liquid banks maintained credit more; solvency effects larger in 2008 than in 2009. Liquidity effects significant in both years.
- Host-country heterogeneity:
  - OECD vs non-OECD hosts (column 2):
    - In 2008, foreign banks in OECD reported lower growth compared to domestic banks (Foreign*2008*OECD country = -0.066*), consistent with earlier crisis onset in OECD countries.
    - In 2009, foreign banks reduced lending compared to domestic banks similarly in OECD and non-OECD countries.
  - Market share heterogeneity (column 3):
    - In countries where foreign banks represent less than 50 percent of banking assets (low market share), foreign banks’ loan growth compared to domestic banks is 8 percent less.
    - In countries where foreign banks dominate (majority foreign), foreign banks have a 1 percent higher loan growth compared to domestic banks (interaction Foreign*2009*Majority foreign = 0.094**; joint test significant).
- Home-country heterogeneity:
  - No significant difference between foreign banks owned by parents in OECD vs non-OECD home countries (column 4).
  - Foreign banks with parents that experienced a systemic banking crisis during 2007-2009 tended to reduce lending more in both 2008 and 2009 compared to domestic banks, though estimates are imprecise (Foreign*2008*Crisis home = -0.047; Foreign*2009*Crisis home = -0.029, not significant).
- Summary interpretation:
  - On average, foreign banks reduced lending more than domestic banks during the global crisis, indicating they contributed to financial instability.
  - Important heterogeneity:
    - When foreign banks dominate a banking system, they were a more stable source of credit than domestic banks.
    - Foreign banks with a large local deposit base were much less likely to reduce lending.

### VI. The Future of Foreign Banking
- Short-run projections:
  - New foreign investment from crisis-affected countries likely limited until their banking systems stabilize.
  - Late 2011 evidence: foreign banks started to sell some foreign subsidiaries due to capital shortfalls.
  - Emerging market banks are well-positioned to seize opportunities:
    - Generally low loan-to-deposit ratios (stable deposit funding).
    - Many have capital ratios well above banks in advanced countries.
    - Basel III likely less costly for these banks (typically lower risk weighted assets).
    - Many emerging market banks are highly profitable, providing buffers for investment.
  - Nevertheless, overall foreign bank investment likely to remain subdued in coming years and below levels witnessed between 1995 and 2007.
- Medium-term outlook:
  - Emerging markets likely to increase foreign investment; banks from emerging markets now account for about 30 percent of all foreign investments.
  - Expansion by emerging market banks likely to be mostly regional:
    - Conjectural reasons: higher growth opportunities and profit margins in emerging markets; increasing presence of emerging market firms abroad.
    - Structural reasons: economic integration, common language, proximity, and competitive advantage in weak-institution environments.
  - Empirical support: 70 percent of all foreign entry by emerging market banks was within their own geographical region (Section 3).

### VII. Conclusions and Policy Questions
- Key conclusion:
  - Foreign banks have become an important part of local banking systems in many countries, but their impact on financial sector development and financial stability depends importantly on host country, home country, and bank characteristics.
- Research and policy questions raised:
  - For which types of countries and under which circumstances do foreign banks most improve domestic financial development?
  - Which institutions are most important to improve when foreign bank presence is greater, given differential impacts by development level?
  - When does foreign bank presence help mitigate shocks versus amplify risks?
  - How do foreign bank type (country of origin, size, degree of international operations, distance between home and host) and relative presence affect their roles in development and stability?
  - Which balance sheet and performance indicators are most important to monitor for assessing foreign banks’ role in domestic intermediation?
- Policy reforms under discussion that need further analysis:
  - Specific financial, disclosure or corporate governance requirements for foreign banks.
  - Optimal degree of separation/segmentation of international from domestic activities (e.g., subsidiarization, ring-fencing).
  - Modalities for international liquidity and lender-of-last-resort facilities to mitigate cross-border turmoil.
  - Optimal institutional framework and burden sharing for resolution of cross-border banks.
- Final note:
  - The database documented in this paper can support more in-depth research taking heterogeneity into account to inform policy on foreign banks’ benefits and risks.

*Source: IMF working paper content provided in the input.*

### Appendix Table 1 - Percentage of Foreign Banks among Total Banks, by Country

### Appendix Table 1 - Percentage of Foreign Banks among Total Banks, by Country

### Table overview
- Annual country-level series of "Percentage of Foreign Banks among Total Banks" for selected years spanning 1995 through 2009 (table covers multiple regional blocks and continuations).
- The table reports raw percentage values by country and year as presented.

### Key country-level findings (selected highlights from the table)
- TOTAL (aggregate): 21, 22, 23, 25, 26, 27, 28, 29, 29, 30, 31, 32, 34, 35, 35 (corresponding to 1995–2009).
- High foreign-bank presence examples:
  - Luxembourg: 98 98 99 99 99 99 99 99 99 99 99 99 99 99 99 (1995–2009 series as reported).
  - Bahamas/Barbados: Barbados reported 100 100 100 100 100 100 for 2004–2009 (Barbados row in LAC block).
  - Madagascar: 75 75 75 80 100 100 100 100 100 100 100 100 (SSA block series spanning 1995–2009).
  - Burundi (SSA): 20 20 20 17 20 20 20 20 20 20 20 25 50 50 (1995–2009).
- Notable country trajectories:
  - United Kingdom (OECD block): 42 45 46 47 48 48 48 49 51 53 54 54 56 57 57 (1995–2009).
  - United States (OECD block): 15 16 16 15 17 19 21 21 21 23 24 24 27 29 32 (1995–2009).
  - China (EAP block, partial reporting): reported "......221" for 2004–2009 block (table cell as given).
  - India (SA block): 6 7 7 8 8 8 8 9 9 9 10 11 12 12 12 (1995–2009 series as reported).
  - Brazil (LAC block, 2004–2009): 19 24 26 26 22 .. (partial series as presented).
- Country-specific zeros / missing patterns (explicitly reported zeros or repeated zeros):
  - Iran: 000000000000000 (no foreign banks reported across the 1995–2009 span in table).
  - Libya, Oman, Yemen, Sri Lanka, Ethiopia, Cuba, Haiti: repeated "000000..." entries where shown.
  - Several countries show missing or dots in some year cells (e.g., China "......221", Cuba "000000").

### Regional and subgroup patterns (selected)
- MENA row (1995–2009): 20 19 20 22 22 22 25 25 26 27 27 27 31 35 38 38 39 (as listed across blocks; table presents mixed formatting).
- OHI (Other High Income?) row: 31 31 31 32 34 34 34 39 40 41 41 41 42 42 42 (as reported).
- OECD block (selected countries listed individually above; aggregate OECD row shown as) OECD: 21 22 22 23 24 24 25 26 27 27 27 27 28 28 28 (1995–2009 series in table).

### Appendix Table 2 note on asset shares and data availability
- Appendix Table 2 reports "Percentage of Foreign Bank Assets among Total Bank Assets, by Country" for 2004–2009 only.
- Note in the table: "Foreign bank asset share is only reported when asset information is available in Bankscope for more than 60 percent of the banks active in the country in that year. Since asset information is lacking in Bankscope for the vast majority of banks before 2004, we do not report asset shares for any country before that year."
- Selected reported asset-share entries (2004–2009):
  - Trinidad & Tobago: 13 13 13 14 56 54 (2004–2009).
  - Luxembourg: 100 100 100 95 96 95 (2004–2009).
  - United Kingdom: 9 12 12 14 19 15 (2004–2009).
  - United States: 20 20 21 23 19 18 (2004–2009).
  - Madagascar: 100 100 100 100 100 100 (2004–2009).
- Several countries in Appendix Table 2 also show repeated zeros or missing cells where asset-share data are not reported (e.g., Iran "000000", Libya "000000", Oman "000000").

### Data limitations and formatting notes (as presented in the source)
- Numerous country rows contain contiguous digits without separators (e.g., "434350444444..." for Trinidad & Tobago), reflecting the original table's compact year-by-year coding; users should interpret each digit or group as the year-specific percentage value as printed.
- Some country-year cells are represented by dots "...." or partial entries (e.g., China "......221"), indicating incomplete or partially formatted reporting in the source table.
- Appendix Table 2 explicitly restricts asset-share reporting to 2004 onward due to Bankscope coverage constraints (more than 60 percent bank coverage condition).

*Source: Appendix Table 1 and Appendix Table 2, as presented in the supplied IMF working paper appendix content.*

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