Foreign Bank Participation and Banking Crises in Transition Economies

Abstract

Using a fixed effect multivariate panel logit econometric model and taking possible endogenity problem into account, we test the hypothesis that foreign bank participation contributes to decrease in banking crises in transition economies in 1990-2006. The results suggest that foreign bank participation decreases the possibility of banking crises, controlling for other factors that may cause banking crises. This paper contributes to the literature by presenting the first empirical evidence on the negative relationship between the actual level of foreign bank presence (or foreign bank concentration) and banking crises for transition countries.