THE WORLD BANK IN THE WORLD OF BANKS: MATTER OF CHOICE

We discussed the negative consequences of heavy lending strategy of IBRD and IDA before. Nowadays, looking for alternative ways to develop, governments create regional trusts as EFiNA and/or attract foreign banks. Is it a good evidence?

J. Bhattacharya (1994) argued that basically foreign banks do not dominate in domestic markets, and their local commitments are strong. B. Fathi (2010) remarks that foreign banks looking for efficient synergy in emerging markets produce competition for domestic banks that encourages the latter to modify performance. However, the author also argues that huge differences in performance quality leads to deterioration, not to improvement of local banks. According to OECD researchers, Basel Two rules complicate access of small enterprises to funds, since it obliges foreign banks to use risk sensitive models to define the amount of credit. It is worth noticing, small businesses provide jobs for 45% employees in developing countries (gov.uk). Obviously, foreign banking plays a vital role in providing needed loans for private entrepreneurs. However, enormous international banks may ruin local competition due to the weak domestic financial system. Thus, dominating in emerging markets, foreign banks might freely speculate with interest rates and act in their own interests.

The table illustrates the overwhelming share of foreign banks in Balkan countries in 2008 

Unsurprisingly, most of the developing countries still prefer to pose barriers against foreign banks to avoid such kind of 'development'.