Discrimination against transnational banks
Other Names: Protection of national banking from international banking
Restrictions of home countries on transnational banking activities
Prejudicial treatment of multinational lending institutions
Nature: Banking regulations and other banking policies in certain countries reflect the industry protection approach. The objective of these policies is twofold: to minimize the access of transnational banks to local savings; and to promote national financial institutions. Access to local savings by transnational banks is curbed by imposing restrictions on the number, location and services of their branch offices. A variety of supplementary policies are designed to promote national institutions. The restrictions on transnational banks range from outright prohibition of any further branches or only the rarest of exceptions, to outright prohibition, which restricts foreign branches to one per transnational bank and limits their location to the nation's capital. Home country governments can also affect the context in which transnational banks operate in numerous indirect ways: examples of this are their management of aggregate real demand and their foreign exchange controls.
Claim: At times, home country authorities have little incentive to facilitate the flow of funds to developing countries. Their primary concern is to protect the home financial system. Even those among them that are becoming more familiar with country analysis may at times have little understanding of the needs of developing countries for finance or of the development process. Thus, greater direct contact between home country banking authorities and borrowers from developing countries could have a salutary effect. A precedent for this exists in the cooperative efforts of central banks from countries in the Pacific Basin. In some cases, and to the extent that the policies of the transnational banks reflect those of their home country governments, it may be useful to draw the attention of those governments to the possible drawbacks of tied lending of any sort for borrowers in developing countries. The transnational banks that restrict themselves to financing the exports of their home countries are tying financial flows in a manner reminiscent of tied development assistance. As transnational banks with special relationships to their home governments supplant transnational banks which do not show such ties, the posture of their home governments toward lending to developing countries will become more important.
Problem Type: E: Emanations of other problems
Date of last update 09.02.1997 – 00:00 CET