Foreign Banks and Banking Crisis: Empirical Evidence From Turkey

Abstract

As the role of foreign banks in emerging markets increased, a debate which focuses on the impact of foreign banks on the host country has developed. Our paper contributes to this literature by presenting empirical evidence from Turkey. Our paper investigates the behavior of foreign and domestic banks in Turkey during financial crisis period. Using bank level data for Turkey, we investigate whether foreign banks contribute to the stability of credit during the periods of crisis and whether there is a correlation between foreign ownership and a bank's likelihood of failure. Our empirical investigation indicates that foreign banks contribute to the greater stability of credit during the periods of crisis and foreign ownership in the banking sector reduces the probability of bank failure in Turkey.