The Poor Performance of Foreign Bank Subsidiaries:  Were the Problems Acquired or Created?

Joe Peek
Eric S. Rosengren
Faith Kasirye

         Bank acquisitions by foreign banking organizations have contributed to the globalization of banking markets, as banking organizations have extended their operations well beyond their own national borders.  The strong penetration of banking markets in the United States by foreign banks contrasts with their weak performance, with most studies finding that foreign-owned banks in the United States underperform their domestic peers.  We examine foreign acquisitions surrounding the time of the ownership change to determine whether the observed poor performance is the result of changes in business strategy or the preexiting characteristics of the target bank.  We find that many of the problems are already present at the time of acquisition.  However, changes in business strategy by the foreign owners is generally not successful in raising the bank's performance level to that of its domestic peers. 

 Return to the Consolidation of the Financial Services Industry