Why Do Foreign Banks Withdraw from Other Nations
This paper describes the trends in foreign bank ownership across the world and presents, for the first time, empirical evidence on the causes of foreign banks’ withdrawal from other nations. Using maximum likelihood estimation techniques and data on 81 closed foreign bank subsidiaries across 37 countries during 1999-2006, we show that problems encountered by the subsidiaries were not the main cause of divestment by the parent banks. Based on data for the parent banks of the closed subsidiaries, our results show that those banks reported significant financial weakness one year prior to the closing of the international operation. We therefore assume that a multinational bank’s decision to close a subsidiary in another nation is caused by problems in the home country rather than by weak performance of the subsidiary. This paper is currently reserved to Carefin sponsors and will be made public on SSRN after a short embargo. Please visit the CAREFIN website to learn more on how to get the paper.