Countries as disparate as Brazil, France, and Poland have been loath to let the national financial system become subject to foreign influence. And foreign ownership of the banks seems to convey the appearance of foreign control. But there are many fundamental reasons why foreign strategic investors are important to the banking industry. Even when foreign banks enter with little capital at risk, they are placing their international reputational capital at risk. Foreign ownership helps clarify private sector control that is independent of the government.
Foreign banks are able to transfer modern banking technology easily.
And such ownership reduces the potential for politicization of bank lending and increases the international integration of financial markets. Most importantly, foreign bank ownership may reduce the likelihood of financial crises. Indeed, it would have significantly reduced the seriousness of the recent financial crises in Asia. Foreign banking interest is a genuine market test of the value and soundness of domestic banks. So it is a useful signal when local financial markets are too thin or too small to draw such attention.