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Should branches of foreign banks be allowed to operate in Belarus?
IPM Research Center |
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| Belarus has still to decide whether to allow branches of foreign banks to operate within its territory and to what extent. A study of the consequences of the presence of foreign banks in the form of branches in different countries and especially in transition economies in both Europe and Asia is therefore of special relevance. This paper gives a brief overview of the implications of such a presence in some countries, emphasising two questions: 1) how to establish the appropriate supervisory arrangements for foreign bank branch operations, and 2) whether foreign bank branches actually compete in the domestic bank market, or whether they service different market segments, primarily by following their clients abroad, and are thus no real rivals to domestic banks. Evidence is provided that branches of foreign banks behave as friends rather than foes. They hardly penetrate the markets traditionally serviced by domestic banks both in developed and in transition economies, and concentrate their activities primary on wholesale operations. At the same time, foreign branches spur the domestic banks into implementing further technological development. They are also very important for signalling reasons, as the key motive for banks to enter foreign country markets is to follow their clients. This means that branches of foreign banks can provide badly needed support for FDI in different sectors of economy. In terms of prudential control the solution of the problem homehost country regulation is the conformity with Basel Core Principles and Minimum Standards plus harmonization, and mutual recognition of these regulations. Market access decisions should be based on assessments of whether the home country regimes apply the Basel Core Principles and the Basel Minimum Standards for cross-border supervision. Besides, entry of bank branches into Belarus should be granted to well-rated banks only. The Chinese approach of “actively “ and “steadily” opening up may be of interest to Belarus, whose supervisory mechanisms are relatively imperfect. Also, at the beginning, branches of foreign banks in Belarus might be allowed to operate only with foreign currencies and engage in wholesale operations. Lastly, it should be noted that the restrictions on the legal form of the commercial presence of bank branches can be tailored to Belarus’ particular needs. |
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| Contributor: |
IPM Research Center - http://research.by/eng/ |
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| Topic: |
Economy and Development |
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| Country: |
Belarus |
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| Document Type: |
Economic Analyses and Commentaries |
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| Year: |
2004 |
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| Keywords: |
Banking, Foreign Direct Investment |
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