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Foreign Banks and Credit Volatility: The Case of Latin American Countries

Authors

  • Meriem Haouat,

    Corresponding author
    1. Institute Supérieur Européen de Gestion (ISEG), Paris, France
      Moccero: European Central Bank. Frankfurt am Main, 60311, Germany. Tel: +49 69 13445413; E-mail: diego.moccero@ecb.int. Haouat: Institut Supérieur Européen de Gestion (ISEG) and ISTEC-Paris, Paris, France‡. Tel: +33 1 44788888; E-mail: meriem.haouat@iseg.fr. Sosa Navarro: Banco de la Provincia de Buenos Aires (BPBA), CABA (C1004AAC), Argentina. Tel: +54 11 4348 9450; E-mail: rsosanavarro@bpba.com.ar.
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  • Diego N. Moccero,

    Corresponding author
    1. European Central Bank, Germany
      Moccero: European Central Bank. Frankfurt am Main, 60311, Germany. Tel: +49 69 13445413; E-mail: diego.moccero@ecb.int. Haouat: Institut Supérieur Européen de Gestion (ISEG) and ISTEC-Paris, Paris, France‡. Tel: +33 1 44788888; E-mail: meriem.haouat@iseg.fr. Sosa Navarro: Banco de la Provincia de Buenos Aires (BPBA), CABA (C1004AAC), Argentina. Tel: +54 11 4348 9450; E-mail: rsosanavarro@bpba.com.ar.
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  • Ramiro Sosa Navarro

    Corresponding author
    1. Banco de la Provincia de Buenos Aires (BPBA), CABA (C1004AAC), Argentina
      Moccero: European Central Bank. Frankfurt am Main, 60311, Germany. Tel: +49 69 13445413; E-mail: diego.moccero@ecb.int. Haouat: Institut Supérieur Européen de Gestion (ISEG) and ISTEC-Paris, Paris, France‡. Tel: +33 1 44788888; E-mail: meriem.haouat@iseg.fr. Sosa Navarro: Banco de la Provincia de Buenos Aires (BPBA), CABA (C1004AAC), Argentina. Tel: +54 11 4348 9450; E-mail: rsosanavarro@bpba.com.ar.
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    • We are indebted to Sanvi Avouyi-Dovi, Gunther Capelle-Blanchard, Laura Clavijo, Emmanuel Duguet, Arturo Galindo, Márcio Garcia, Martín Grandes, Michel Guillard, Jérôme Héricourt, Guillermo Hillcoat, Annina Kaltenbrunner, Luiz de Mello, Ferhat Mihoubi, Andrew Powell, Juan Francisco Sepulveda, Giovanni Urga, Thierry Verdier and Carlos Winograd. The views expressed in this paper are those of the authors and do not necessarily reflect those of the ECB, the ISEG and the BPBA.


  • Correction added on 23 November 2012 after first publication online on 19 October 2012 in Review of International Economics Volume 20, Issue 5. ISTEC-Paris was added to the author's affiliation in this corrected version of the article.

Moccero: European Central Bank. Frankfurt am Main, 60311, Germany. Tel: +49 69 13445413; E-mail: diego.moccero@ecb.int. Haouat: Institut Supérieur Européen de Gestion (ISEG) and ISTEC-Paris, Paris, France‡. Tel: +33 1 44788888; E-mail: meriem.haouat@iseg.fr. Sosa Navarro: Banco de la Provincia de Buenos Aires (BPBA), CABA (C1004AAC), Argentina. Tel: +54 11 4348 9450; E-mail: rsosanavarro@bpba.com.ar.

Abstract

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.

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