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WTO Working Papers

WTO working papers usually represent research in progress. Such research may be conducted in the preparation of WTO Secretariat reports, studies or other material for WTO members. The papers are circulated for comment because the WTO considers critical review of professional research to be extremely important.

English

Foreign Banking

Do Countries' WTO Commitments Match Actual Practices?

The General Agreement on Trade in Services (known as the GATS) is an important new element in the international framework that affects the regulation of every WTO Member's financial sector. However, except for a limited number of country-specific case studies, no attempt has been made to compare WTO commitments to open the domestic banking sector to foreign banks with actual regulatory practice in a systematic and comprehensive manner on a cross-country basis. Nor has much attention been devoted to systematically and comprehensively assess the degree to which WTO Members discriminate against foreign bank. This paper draws upon a new and comprehensive dataset consisting of the commitments countries made at the WTO and the regulations actually imposed on foreign banks by those countries. The dataset covers 123 WTO Members for whom there was also information available on their current regulatory regime for banking (based on the responses to a World Bank survey as discussed in Barth, Caprio, and Levine (2006)). On the basis of that data, the authors develop indices measuring the degree of openness to foreign banking based upon both commitments made and actual regulatory practice, with a view to assessing the overall extent to which countries open their borders to foreign banks more than they are legally obliged to do based upon their WTO commitments. The dataset is also used to assess the overall extent to which countries discriminate against foreign banks by regulating them less favorably than domestic banks. Although our results are still quite preliminary, they do show substantial divergences between commitments and practices. Indices of market openness and discrimination reveal wide differences among the 123 countries in the sample. The paper also identifies various factors that help explain the level of commitments that WTO Members have made.

English

Keywords: banking, foreign bank entry, WTO, GATS, financial services, financial sector liberalization, Bank regulation, trade in services
JEL: G28: Financial Economics / Financial Institutions and Services / Financial Institutions and Services: Government Policy and Regulation; G20: Financial Economics / Financial Institutions and Services / Financial Institutions and Services: General; D78: Microeconomics / Analysis of Collective Decision-Making / Positive Analysis of Policy Formulation and Implementation; G21: Financial Economics / Financial Institutions and Services / Banks; Depository Institutions; Micro Finance Institutions; Mortgages; F13: International Economics / Trade / Trade Policy; International Trade Organizations
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