Why Do Foreign Banks Withdraw from Other Countries?*

Abstract

This paper describes trends in foreign bank ownership across the world and, for the first time, presents empirical evidence of the causes of multinational bank exits from other countries. Using panel data for 149 closed or divested foreign bank subsidiaries across 54 countries from 1997 to 2009, we show that the problems encountered by subsidiaries were not the main cause of divestment by parent banks. Based on data for the parent banks of the closed subsidiaries, the results show that these parent banks reported significant financial weaknesses before closing their international operations. Therefore, we conclude that a multinational bank's decision to close or sell a subsidiary in another country is motivated by problems in the home country, with the weak performance of the foreign subsidiary in the host country being a less relevant factor.

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