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This paper examines the effect that foreign bank entry into China had on transaction fees and service fees charged by domestic Chinese banks.

This paper is an empirical study using financial data for listed Chinese banks collected from the China Stock Market Financial Statement Database.

This paper finds that domestic banks cut transaction fees and service fees shortly before the entry into China of foreign banks, and domestic banks did not cut transaction fees and service fees after foreign banks entered into China.

This paper does not examine any non-price strategies employed by local Chinese banks in response to the entry of foreign banks.

This is the first study to examine transaction fees and service fees charged by domestic Chinese banks in response to the entry of foreign banks into China.

This article considers the action of the Canadian Government in lifting its “asset ceiling” on foreign banks, and examines the challenge foreign banks pose to the oligopolistic Canadian banking market. In particular, it focuses on the foreign banks' competitive advantage, their market targeting approaches and marketing strategies, and their acceptance in the marketplace.

US money and capital markets have changed dramatically over the past 25 years. Despite the change and uncertainty, lending activities of branches and agencies continued to expand in US markets through the early 1990s. The focus of lending by agencies and branches of foreign banks has been altered to accommodate their overall growth. The largest relative gain in loan activities of foreign banks has been in real estate and business loans. In addition, loans to other financial institutions have declined in relative terms. The change in lending activities is consistent with what has been termed a commercial‐industrial strategy, one of several unique marketing strategies that have been employed by major US banks.

China's accession to World Trade Organization (WTO) opened its financial markets to foreign banks in December 2006. In addition to foreign banks’ expertise and experience in modern banking activities, they also appear to have the interest, competitiveness, and regulatory advantages of competing with Chinese banks in the traditional Renminbi (RMB) business. Such competition will lead to a loss of RMB deposits and loans from local banks. Given that Chinese banks are currently ridden with large non-performing loans and low capital adequacy, the foreign bank entry will exert further pressure on the banks’ profitability and solvency. Without larger regular bailouts from the central government and fundamental changes on the roles of Chinese banks, China may experience a banking crisis in the post-WTO era. We propose two types of policy changes that may improve banks’ competitiveness and reduce the likelihood of a banking crisis.

Purpose – Investigate the causes and consequences of foreign financial institutions' divestments in China's banking sector which is an example of cross-border transactions by institutional investors.

Methodology – Use a sample of 26 foreign financial institutions' strategic investments in Chinese banks. Ten of those investments are divested after the global financial crisis. We investigate determinants of the divestment, business cooperation after the divestment, and Chinese banks' stock price reactions to the divestment announcement.

Findings – The poor performance of foreign financial institutions, which is attributable to the global financial crisis, and the institutions' regulated low equity ownership are important causes of divestment (or whole divestment). In contrast, Chinese banks' poor performance does not cause foreign divestments. Foreign financial institutions that fully divest their equity stakes usually terminate their cooperative business, which was required by the strategic investment agreement. The Bank of China and the China Construction Bank, which experienced large H-share divestments, experienced large economic declines in A-share values.

Social implications – Foreign financial institutions' strategic investments created substantial shareholder value before the divestment. Banking sector developments that rely on foreign investments are vulnerable to economic downturns in developed countries.

Originality/value of paper – To the best of our knowledge, this is the first trial to analyze the impact of divestments on divested bank performance.

This chapter examines whether the geographic distance between subsidiaries of multinational banks and their headquarters is an important factor in determining the performance of the subsidiaries. Using various performance indicators of 340 subsidiaries in 54 emerging and developing economies from 69 global banks during the years 1994–2008, we find evidence that first, the distance constraint adversely affects loan growth, profitability, and performance of foreign bank subsidiaries, and second, the unfavorable information asymmetry faced by foreign banks, due to the distance constraint, in financing foreign clients cannot be fully overcome by establishing their presence abroad such as setting up their foreign subsidiaries. We further examine if the effect of distance is symmetric across different banks and countries and find the following various economic, financial, and institutional factors to affect the strength of distance constraints in the multinational banking activities: the entry mode of foreign banks, the history of presence in local markets, the existence of credit information institutions, the cultural similarity between the home and host markets, financial depth, financial crisis periods, the stock market development, the banking market structure in host markets, and the hierarchy of the subsidiary in the multinational banking conglomerate.

In this chapter we study the intra-group transactions between the parent bank and its foreign subsidiaries in European Union (EU) countries during the crisis. We use hand-collected data from annual statements on related party transaction and find that they may create a serious problem for the stability of the foreign banks’ subsidiaries. Moreover, as some of those subsidiary banks were large by assets in some of the member states the related party transactions with the parent bank created a serious threat to the host countries’ financial system stability. We attribute this transaction to the weak governance in foreign subsidiaries. We suggest improvements in governance as well as greater disclosure of related party transactions in bank holding companies in Europe.

This chapter investigates a shock transmission path between a home country (a country where globalized banks’ headquarters are located) and a host country (Indonesia as the emerging market) through the lending channel of global banks’ local branches (i.e., the internal transfer channel). Using novel data of monthly individual foreign bank’s balance sheet in Indonesia, the author finds the evidence that shocks to a parent bank and a home economy are transmitted to a host economy through the foreign banks’ internal capital market. With the Indonesia banks’ capital injections and their difficulty in financing dollar funds without risk premiums since the 1998s crisis, the foreign banks’ dollar lending in Indonesia is a good showcase of internal capital markets. A change in a home stock market index and industrial production appears to have a negative effect on growth rates in foreign currency loans of foreign banks in the host market. On the other hand, high growth rates in the parent bank’s stock price in the home market lead to an increase in foreign banks’ US dollar lending in the host country. This effect does not appear in local currency lending because limited hedging instruments against foreign exchange risk results in immobility of bank capital in the local currency.

This chapter examines the impact of price fluctuations in foreign stock markets on the stock prices of domestic banks in Korea, Malaysia, Singapore, and Thailand. Some studies have argued that the 2007–2009 global financial crisis (GFC) affected domestic banks less in East Asia, even though the supporting evidence is rather limited. Employing a multinomial logit model, we estimate how changes in the United States and Japanese stock markets affected the banking sectors in the sampled countries before the 1997 Asian financial crisis, and before and during the more recent GFC. We interpret the number of banks in a given country that experienced a large price shock on the same day (or “coexceedance”) as shocks to the domestic banking sector. The results suggest that fluctuations in foreign stock market indices exerted a larger impact on the prices of East Asian banking stocks during the 2000s than during the 1990s. In addition, although the shocks brought about by the deterioration of foreign stock markets were significant before the GFC, both increases and decreases in foreign stock prices significantly affected the banking sectors of the respective countries during the crisis. Lastly, we conclude that increasing foreign capital flows and foreign assets and liabilities greatly influenced domestic banking systems in East Asia during the 2000s.

This chapter examines how foreign banks respond to domestic monetary policy in host countries during crisis periods, in particular, the response shown toward the Asian financial crisis of 1997–1999 and the global financial crisis of 2008–2009. By observing 283 domestic and foreign banks in seven emerging Asian economies, we find that foreign banks are slower than domestic banks in adjusting the growth of their loans to changes in host monetary policy. This inertia by foreign banks is found to be more pronounced in the recent 2008–2009 global crisis than in the 1997–1999 Asian regional crisis, suggesting that the buffering/hampering effects of foreign banks on the effectiveness of the domestic monetary policy transmission mechanism become stronger in a recent global crisis originating from outside Asia than a regional crisis imploded within Asia a decade earlier. We also find that foreign banks’ lower sensitivity than domestic banks to host monetary policy during the crisis periods is heterogeneous, depending on factors such as the extent of the adverse impact of crises on parent banks, the scope of business operation by parent banks, and foreign banks’ mode of entry into host banking markets.