Assets or liabilities? The politics of bank ownership

Abstract

By 2014, there was significant variation across the global economy in the levels of domestic and foreign bank ownership among states. While major emerging and most advanced countries continued to protect domestic control over the bulk of their banking assets, a number of developing and transition economies had opened their banking markets to unprecedentedly high levels of foreign bank ownership. This introduction to a special issue on the politics of bank ownership examines why states have taken such divergent paths, and maps out some of the major consequences of disparate foreign bank ownership levels. The special issue finds that banking sector protectionism against a backdrop of globalization has generated new conflicts and costs for states. Paradoxically, it is the large, powerful countries that are most susceptible to such costs and conflict, in contrast to their more open, if weaker, counterparts. In addition, we find that high levels of foreign bank ownership have not resulted in significant vulnerability for host states, as some scholars had predicted. In some cases, foreign bank ownership can even improve a weak state's power position. Finally, we conclude that states’ varying approaches to banking sector protectionism and openness complicate efforts to supranationalize bank regulation and supervision, exacerbating financial instability.

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