Who Gains from Services FDI—Host or Home Economies? An Analysis of Disaggregated Services FDI Inflows and Outflows of 24 European Economies

This study focuses on a sample of 24 European economies to examine the spillovers from disaggregated services foreign direct investment (FDI) on economic growth. We study the impact of 20 disaggregated services FDI inflows and outflows, respectively, on their host and home country services sector and overall growth. We find that both financial services and business services FDI are beneficial for growth in both host and home countries. Financial services FDI works though financial holding companies and home countries benefit especially from investment in foreign banks, which provides access to credit. Business services FDI works though management holding companies and home countries benefit, especially from investment in computer activities, which provides access to specialised human capital and high-value knowledge assets. The positive spillovers to home countries provide evidence for arguing against protectionism. JEL Codes: F2, F21, F43

Resurgence, Part II

Large banks and their political allies waged a twenty-year campaign to secure legislation that would remove the structural buffers established by the Glass-Steagall and Bank Holding Company Acts. That campaign triumphed in 1999, when Congress passed the Gramm-Leach-Bliley Act (GLBA). GLBA authorized the creation of financial holding companies that owned banks, securities firms, and insurance companies. In 2000, Congress passed the Commodity Futures Modernization Act (CFMA), which exempted over-the-counter derivatives from substantive regulation by the federal government or the states. GLBA and CFMA enabled large U.S. banks to become universal banks for the first time since the 1930s. Large U.S. securities firms responded by becoming shadow banks (and de facto universal banks) through their issuance of deposit substitutes (shadow deposits). Similar patterns of deregulation encouraged the growth of large universal banks in the U.K. and Europe. A group of seventeen U.S., U.K., and European financial conglomerates dominated global financial markets by 2000.

Effect of Bank Holding Company Structure on Farmers’ Financial Welfare in Nigeria

This study examines the impact of bank holding structure on the financial welfare of farmers. We used an expost facto research design and studied all the 18 deposit money banks in Nigeria. We used dummy variable to measure bank conglomerate structure for the period between 2001 and 2018. We also identified the features of financial holding companies based on firms’ specific variables including portfolio condition, competitive standing, equity characteristics and sizes. Based on our analysis, bank holding structures significantly and positively affect banks’ propensity to create risk assets to farmers (coefficient=0.34; p-value less 5%). This implies that ring fencing banks leads to increase in credit availability to farmers and consequently their welfare advancement in Nigeria. Banks with holding structure have competitive advantage and this competiveness benefits farmers significantly (coefficient=0.05; p-value < 0.05). Our analysis also shows that banks with holding structures diversify into non-interest source of revenue, which yields positive and significant effect on farmers’ financial welfare (coefficient= 2.05). Thus, diversifying conglomerating banks can outperform their peers in terms of risk asset making for farmers to extent that relative to non conglomerate banks, up to 2.05% of credit is allocated to farmers for every unit change in bank market due to holding structures. Variation in deposit demands, and gross assets were found to advance loans to farmers. However, default risks and liquidity risk of conglomerate banks limits their credit availability to farmers, which implies that conglomerate banks are highly sensitive to liquidity and default risks. We also found that conglomerate banks allocates risks asset to farmers based on the national economic growth level. Thus, as the economy improves conglomerate banks’ desire to make risk assets to farmers also increases. We recommend that regulators should improve economic growth in order to draw banks into lending to farmers. Conglomerate banks should be protected from default shocks and liquidity risks in order to encourage them to lend more to farmers.