The Recent Expansion of Foreign Banks in Brazil : First Results

Current empirical literature on the activities of foreign banks exhibit some degree of consensus around the thesis that foreign banks are less efficient than domestic banks in the case of industrial countries, but they are more efficient than domestic institutions in emerging economies. The reasons for such phenomenon include the exposure to tougher competition in industrial countries, adoption of better management methods, tendency to develop new products and technologies, and the influence of better-equipped regulators. The paper examines these claims in the light of recent Brazilian experience. It is shown that, at least in the case of Brazil, the expansion of foreign banks' activities in the domestic markets has not resulted in any major improvement. Operational characteristics are similar for domestic and foreign banks, as are efficiency measures. Technical progress has been introduced by domestic banks, particularly in the fields of automation and online banking, much more intensively than by foreign banks. Balance sheet structures are very similar for both groups, dominated by interfinancial operations and by investment in securities. Thus, there is no evidence that the generally accepted thesis mentioned above applies to Brazil.