Foreign and Domestic Banks: A Comparison for Customer Satisfaction and Perception

2435 Words 10 Pages
International banking is now a days becoming backbone of any economy. It plays a vital role in the development of financial system of country. International banking activities has been grown-up speedily due to increased international trade flows and foreign direct investment activities, the globalization of capital markets, and the liberalization of domestic financial markets since 1960s. International banking activities may involve cross-border activities and activities of banks outside their home country (i.e. foreign banks). Banking has gradually become more globalized, which leads towards advances in communications and technology, economic integration. Especially, foreign bank entry has increased sharply in the last few decades, which …show more content…
Most of the studies of FDI in banking in the U.S rightly focus on branches and agencies.
Adrian E. Tschoegl (2010), had studied the impact of foreign banks by dividing foreign banks into two categories i.e. affiliates and subsidiaries. He argued that in general, there is no reason to expect foreign banks to be better than local banks in well-developed competitive retail markets; this argument was also supported by Dufey and Yeung, in 1993.
Foreign banks are not successful in already competitive domestic banking markets. Aggregate data of different studies supports this argument by stating that foreign banks have no advantage in already competitive retail banking markets. Demirgiic-Kunt and Huizinga (1999) and Claessens et al., (2001) found that foreign banks are likely to have higher margins and profits than domestic banks in developing countries, but lower margins and profits in industrial or developed countries. Demirgiiu-Kunt and Huiz-inga (2001) further found evidence that foreign banks engage in extensive profit shifting..
Comparative performance of domestic and foreign banks has been taken over in developed countries especially in the U.S by Peek et al. where foreign bank presence has increased drastically since the 1980s. Peek et al. (1999) found that the poor performance was a result of the foreign banks acquiring
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