Foreign Bank Entry And The Stability Of The Host Country Banking System

Finance is the core of modern economic development, and the banking is a barometer ofthe financial system, the stability of the financial system is mainly depended on the bankingsector. In addition, the stability of the bank can improve the efficiency and promote the earnings.Today, most countries begin to allow foreign banks to participate in the national bankingcompetition. The stability is the most important aspect in this area.In recent years, research on this issue is in-depth and complex. Whether foreign banks canenhance the banking system stability in the host country or guide the greater destabilizingfactors, the empirical statistics have not yet reached the same conclusion.For China, the stable operation of the banking system is particularly important. Thestability of Chinese banking system will face greater challenges after we joined WTO, committo open financial markets, foreign banks enjoy national treatment and so on.The thesis refers to the research experiences and methods at home and abroad. Firstly, Idescribed and concluded this theory and literature and gave some comments. Secondly, I testthe conclusion using qualitative and quantitative analysis. Finally, I used the financial paneldata of18countries from1997to2010to make the regression and get some significantconclusion: The entry of foreign banks is positively correlated with the GDP growth rate of thehost country; After foreign banks entry, The non-performing loan rate of host country’s bank isdeclining; The loan-to-deposit spreads is narrowing. Therefore the entry of foreign banksenhances the stability of the host country’s banking system. Finally, the paper proposed anumber of policies and measures to respond to the entry of foreign banks.