In a cross-country analysis of 13 countries in Latin America, we find that depositors punish risky banks by charging high interest rates or withdrawing deposits. This type of market discipline is strong where Basel Core Principles compliance is high. We estimate a system of equations to test if banks respond to depositor’s actions. We find that banks respond to market discipline in high BCP-compliant countries only, suggesting that official regulation and market discipline are complements.

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Using an original database on the operations in Latin America and Eastern Europe of the top 100 international banks, this paper examines the factors that influence banks’ choice of organizational form, while controlling for their decisions to enter certain markets. We find that regulation, taxation, the degree of desired penetration in the local market, and host country risk matter.

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This looks at bank ownership and bank performance in 119 countries over the 1995-2002 period. It finds that ownership is strongly correlated with performance in developing countries but that ownership is not correlated with performance in industrial countries. The paper suggests that state-owned banks operating in developing countries tend to have lower profitability and higher costs than their private counterparts and that the opposite is true for foreign owned banks.

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We develop a model that shows that inefficient legal protections disproportiantely increase financial restrictions for creditors that have less wealth. Due to fixed costs banks do not monitor small firms and as a result they adopt risky technologies that imply a high risk of bankruptcy. Therefore an inefficient bankruptcy procedure affects more small firms. Using a survey in 62 countries, we test this idea. We find that creditor protections reduce the financing gap between small and large firms.

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A growing interest has emerged to verify which paradigm better explains recent increases in Mexican banking profitability: market power or efficiency. To test these models, we construct specific indicators of efficiency, based on the efficient frontier concept, to incorporate them into a traditional profit-structure model. In contrast to previous studies, we find unquestionable evidence in favor of the relative market power hypothesis only; howerver, its political implications remain uncertain.

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