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Foreign banks, profits and commercial credit extension in the United States

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  • Philip Molyneux
  • Rama Seth

Abstract

This paper simultaneously models the determinants of foreign bank profitability and commercial credit extension in the United States between 11987 and 1991. Overall, the results indicate that supply-side factors such as capital strength, commercial and industrial loan growth, and assets composition were important factors in determining foreign banks' return-on-assets in the period under study. Capital strength stands out as being the most important factor influencing foreign bank return on shareholders equity. U.S. demand also appeared to be important in determining foreign bank performance but it had no significant impact on growth in commercial lending. There is also little evidence to suggest that the largest foreign banks are significantly more profitable than their smaller counterparts. In general, it appears that capital strength will be one of the most important factors determining foreign bank performance in the United States over the coming years. As a consequence, we tentatively suggest that capital considerations may well outweigh other factors when foreign bank expansion plans are considered in the United States prior to the 1997 nationwide branch banking watershed.

Suggested Citation

  • Philip Molyneux & Rama Seth, 1996. "Foreign banks, profits and commercial credit extension in the United States," Research Paper 9628, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednrp:9628
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    Cited by:

    1. Shelagh Heffernan & Xiaoqing Fu, 2010. "Determinants of financial performance in Chinese banking," Applied Financial Economics, Taylor & Francis Journals, vol. 20(20), pages 1585-1600.
    2. Peek, Joe & Rosengren, Eric S. & Kasirye, Faith, 1999. "The poor performance of foreign bank subsidiaries: Were the problems acquired or created?," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 579-604, February.
    3. de Haas, Ralph & van Lelyveld, Iman, 2006. "Foreign banks and credit stability in Central and Eastern Europe. A panel data analysis," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1927-1952, July.
    4. José Eduardo Gómez Gónzalez & Jorge Marío Uribe Gil & Hernán Piñeros Gordo, 2009. "Determinantes de la Rentabilidad de los Bancos en Colombia: ¿Importa la Tasa de Cambio?," Borradores de Economia 556, Banco de la Republica de Colombia.
    5. Claudia M. Buch & Stefan M. Golder, 2000. "Foreign competition and disintermediation: no threat to the German banking system?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(213), pages 107-133.
    6. Havrylchyk, Olena & Jurzyk, Emilia, 2006. "Profitability of foreign banks in Central and Eastern Europe : does the entry model matter?," BOFIT Discussion Papers 5/2006, Bank of Finland, Institute for Economies in Transition.
    7. Awdeh Ali & El Moussawi Chawki, 2009. "Bank Efficiency and Foreign Ownership in the Lebanese Banking Sector," Review of Middle East Economics and Finance, De Gruyter, vol. 5(2), pages 66-87, September.
    8. Michal Jurek, 2014. "Role and impact of different types of financial institutions on economic performance and stability of the real sector in selected EU member states," Working papers wpaper36, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    9. Kyriaki Kosmidou & Fotios Pasiouras & Angelos Tsaklanganos, 2005. "Factors influencing the profits and size of Greek banks operating abroad: a pooled time-series study," Applied Financial Economics, Taylor & Francis Journals, vol. 15(10), pages 731-738.
    10. Havrylchyk, Olena & Jurzyk, Emilia, 2006. "Profitability of foreign banks in Central and Eastern Europe: does the entry model matter?," BOFIT Discussion Papers 5/2006, Bank of Finland Institute for Emerging Economies (BOFIT).
    11. Minh To, Huong & Tripe, David, 2002. "Factors influencing the performance of foreign-owned banks in New Zealand," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 12(4-5), pages 341-357.
    12. Williams, Barry, 2003. "Domestic and international determinants of bank profits: Foreign banks in Australia," Journal of Banking & Finance, Elsevier, vol. 27(6), pages 1185-1210, June.
    13. Roksolana Zapotichna, 2017. "Banking On Multinationals: The Determinants Of Cross-Border Credits To Central And Eastern Europe, 1990-2015," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 3(1).
    14. Ana Lozano†Vivas & Laurent Weill, 2012. "How Does Cross†Border Activity Affect EU Banking Markets?," European Financial Management, European Financial Management Association, vol. 18(2), pages 303-320, March.
    15. Elyasiani, Elyas & Jia, Jingyi (Jane), 2019. "Relative performance and systemic risk contributions of small and large banks during the financial crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 220-241.
    16. Fiona, Tregenna, 2006. "An empirical investigation of the effects of concentration on profitability among US banks," MPRA Paper 13731, University Library of Munich, Germany, revised 2009.
    17. Atiya Aljbiri, 2013. "Factors affecting Gumhouria Bank's profitability. Empirical evidence from biggest commercial bank in Libya," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 61(7), pages 1941-1949.
    18. Awdeh, Ali, 2011. "The Determinants of Bank Profitability and the Effects of Foreign Ownership," MPRA Paper 119117, University Library of Munich, Germany.
    19. Muhammad Farhan & Abdul Jabbar Khan & Muhammad Akram, 2011. "Venture Capital Sector in Pakistan: Ratio Analysis Approach for Financial Performance Assessment," Information Management and Business Review, AMH International, vol. 2(6), pages 287-292.
    20. repec:zbw:bofitp:2006_005 is not listed on IDEAS

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