[more] Financial systems of different countries have become more interconnected in recent years.
This process of financial integration allows for a better diversification of risks.
Banks’ decision to internationalize can be determined by entry barriers, geographical distance or growth prospects.
The entry of foreign banks into domestic markets can bring along benefits and costs for the host country.
This paper provides evidence that greater competition from credit unions induce banks to become more efficient, with consumers benefitting from higher deposit rates and lower borrowing costs.
However, shadow banks change their credit policy and aggressively expand credit to riskier borrowers, resulting in higher default rates.
This implies that financial market stability in one country influences stability in another country.
For this reason, different countries should have an incentive to cooperate…
They document that both small and large banks have distinct advantages in lending to small businesses, with small banks more likely to emphasize relationship lending technologies and large banks more likely to use transactional ones.
However, they also find that small business lending for all-sized banks is in general characterized by practices that are locally-based, relationship-oriented, and high-touch (meaning, staff-intensive).