Dutch paper says foreign banks can help or harm developing markets

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A working paper, published today by The Netherlands Bank, finds that the presence of foreign-owned banks in developing countries can both help and hinder the domestic financial system.

Researchers Stijn Claessens and Neeltje Van Horen analyse data from 74 countries between 1997 and 2007, to exclude the financial crisis. They find evidence that foreign banks tend to be able to provide cheaper financial intermediation than domestic banks, are less leveraged and have higher capital adequacy ratios.

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