Foreign bank penetration to Nordic countries

Lars Engwall, Rolf Marquardt, Torben Pedersen, Adrian E. Tschoegl Journal of International Financial Markets, Institutions and Money 11(2001) Word count 1064 Foreign bank penetration of newly opened markets in the Nordic countries Abstract Current essay is based on the research article of Lars Engwall, Rolf Marquardt, Torben Pedersen and Adrian E. Tschoegl. The authors’ research examines the role of foreign banks in Nordic countries, focusing particularly on four countries – Norway, Denmark, Finland and Sweden.

The authors reviewed regulations on foreign bank entry that may have limited the presence of foreign banks in 1970s and how the removal of barriers influenced the method of entry, as well as on survival factors. The policy of liberalization played an important role in providing new services and stimulating competition and efficiency in the domestic market of four countries. 1. Introduction The aim of the article is to determine the evolution of foreign banks in the banking system as a whole.

On the basis of the research three hypotheses related to determinants of the foreign bank sector’s share were formulated. Tschoegl (2002) identified that the Norwegian case has a number of useful characteristics in banking system. Primarily, it is a clear and recent starting point for the entry of foreign banks. Second, there is an interesting mix of entrants and abstainers, and entry strategies. Third, enough time has elapsed that one can start to observe failures and survivors.

The reviewed literature is essential in Justifying the research on the topic and provides useful definitions on liability of foreignness and major sources of problems in Foreign Direct Investment ( ) However, a briet review ot liberalization history ot he Norwegian banking system and especially policies towards foreign banks, which in turn affected on entry and survival picture, could be useful. Tschoegl (2002) noted that Norway had a long history of closure to foreign banks. In the following section, I consider 3 hypotheses introduced by Engwall et al. (2001).

Section 3 will focus on methodological issues applied in the testing of the model. The paper ends with a few concluding comments. 2. The hypotheses H 1: the longer foreign banks have been present, the larger their market share. There is an assumption that the time trend affected on the market share of foreign ntrants. Engwall et al (2001) claimed that new foreign ventures faced liability of foreignness that had three aspects. Based on the studies of Choi et al. , (1986, 1996) the cost of operation at a distance was asserted to have less effect on expenses in banking at a distant.

The issues such as operating in unfamiliar environment and establishment of relationships with clients are cases of FDI (Tschoegl, 1987) that require a long time period to build proper performance and increase the market share of foreign banks. Grosse and Goldberg (1991) suggest that FDI has become ore regional, and to benefit from regional specialization banks should acquire specific knowledge and experience. Thus, middle-range theories state when already active in a specific region, foreign banks are likely to expand in that same region.

Factors like past colonial links, language or other similarities that do not overlap with regional groupings may then become less important. H2: the market share of foreign banks should expand with a trade deficit and contract with a trade surplus According to Tschoegl (2002) the foreign banks essentially provide a fringe service ied to import trade and related activities. Likewise, Goldberg et al. , (1989) found that international trade is intensive in its use of financial services and those financial services tend to be exported along with goods.