What Determines The Foreign Ownership Share of A Country's Banking Assets?

Abstract

The General Agreement on Trade in Services (GATS) is an important new element in the international framework that affects the regulation of the financial sector of every World Trade Organization (WTO) member and all potential members. The opening of financial markets in countries to foreign entry is an important goal of this agreement. To a large degree, the foreign ownership share of a country’s banking assets reflects whether this goal is being achieved. In this thesis, the focus goes beyond the profitability factors, the economic factors, and the political factors that affect the foreign ownership share of a country’s bank assets. It does so by examining the extent to which legal and regulatory factors impede foreign entry into a country’s banking industry. The results of this paper are mainly based on the estimation of the following six groups of datasets: market-openness data, regulation data, governance data, performance and market-structure data, depositor protection data, and macroeconomic data. The primary contribution of this study is to use new and comprehensive cross-country datasets on market-openness and regulation to study foreign expansion into a country’s banking industry. In this thesis, I also provide a general picture of how and to what degree other important controlling factors affect the foreign ownership share of a country’s banking assets. In this respect, the analyses presented here extend the recent work in the increasingly recognized important area of research on globalization of financial market.