FINC495 Week 5 Discussion 9

The following quote is from Implications of globalization of the banking International capital markets: Developments, prospects, and key policy issues. By Donald J. Mathieson and Garry J. Schinasi. 2000. “It has been suggested that foreign banks can provide a more stable source of credit and can make the banking system more robust to shocks. The greater stability is said to reflect the fact that the branches and subsidiaries of large international banks can draw on their parent for additional funding and capital when needed. In turn, the parent may be able to provide such funding because it will typically hold a more internationally diversified portfolio than domestic banks, which means that its income stream will be less correlated with purely domestic shocks” This quote suggests that the presence of international banks will reduce the risk and severity of domestic bank crises within a country. I have two questions regarding that assumption; 1. What happens to the risk – does it disappear, get transformed into a different kind of risk, or does it get pushed off on somebody else? 2. If the statement is true, what went wrong in Argentina since 2001? International banks had a presence in Argentina and yet, the system of payments collapsed. Why?

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