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Do Foreign Banks Always Bring Positive Impacts Into the Domestic Banking Sector?

  • Date Submitted: 03/25/2015 10:07 PM
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Do foreign banks always bring positive impacts into the domestic banking sector?

  Since the 1960s, foreign bank activities have grown quickly due to increased international trade flows, foreign direct investment activities, the globalization of capital markets and the liberalization of domestic financial markets.   The increased presence of foreign banks raises questions about their effects on domestic banking sector.   This paper aims to analyze whether the effects of foreign banks on domestic banking sector are always positive.   Actually, the presence of foreign banks does not always bring positive influence on domestic banks and the positive influence outweigh the negative influence.   This paper will argue the positive influence of the competition between foreign banks and domestic banks, the negative influence of the competition between foreign banks and domestic banks, the effects of management that foreign banks impact on domestic banks, increase the quality of human capital in domestic banking sector, some spill-over effects of foreign banks entry and the influence on domestic bank credit.

  Foreign banks lead domestic banks to increased efficiency and the diversity of financial services through the competition between domestic banks and foreign banks.   Domestic banks have to improve themselves as soon as possible after foreign banks entry to protect their market benefits. In an earlier paper on this issue, Jeon, Olivero and Wu(2011) claim that the presence of Foreign banks contributes to increased competition in the banking sector.   First, with the increased competition, the presence of foreign banks put old-style banking practices under pressure, so the quality, pricing, and availability of domestic banking financial services have to improve, which pointed by Goldberg (2004) which in his article using a large data of individual banks in Mexico and Argentina in the 1990s.   Second, Chantapong (2005) mention that the net interest margin and overhead...

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