The Influence Of Foreign Banks Enter The Monetary Policy For The Host Country Study

Since the mid-1990s, the most significant structural change in financial systems of developing countries is the entrance of foreign bank. In order to meet the needs of the recapitalization of banking system after the Asian financial crisis in the late20th century, most of developing countries have implemented the policy of accelerating financial liberalization and relaxing the restriction of entrance of foreign bank, so the market power of foreign bank rises rapidly in the host country. Currently, foreign bank has become an important component of the financial system in many countries. Obviously, the entrance of foreign bank has more and more influence on the host country. Monetary policy is an important part of macro-finance control tools, an effective monetary policy plays a key role from the macroeconomic to the micro-individual, promoting the development of economics; otherwise, a poor monetary policy weakens the country’s control efforts and has a negative impact on the development of economics. The entrance of foreign bank influences the scale of credit while credit regulation is a core measure of monetary policy. So the entrance of foreign bank affects the transmission mechanism of monetary policy and has a negative effect on monetary policy.This paper firstly analyzes the effects of various monetary policy tools with the entrance of foreign bank, analyzing the effect of entrance of foreign bank on contractionary and expansionary monetary policy, knowing that the entrance of foreign bank has a negative impact on both contractionary and expansionary monetary policy. However, it has a greater impact on contractionary monetary policy.Secondly, this paper derives an existing model to get a quantitative understanding of the influence factor to the scale of host country with the entrance of foreign bank. Then I created a model based on the outcome and had an empirical analysis by using data of96developing countries. The entrance of foreign bank has a negative impact on monetary policy. However, the impact is weak.Finally, combining theoretical analysis and empirical research, I give some policy recommendations.