Foreign direct investment in the financial sector - experiences in Asia, central and eastern Europe and Latin America
In March 2004, the Committee on the Global Financial System (CGFS) published a report entitled Foreign direct investment in the financial sector of emerging market economies (the Cumming Report). The report discusses how the surge in financial sector foreign direct investment (FSFDI) over the past decade has been instrumental in integrating emerging economies into the global financial system. On the one hand, integration has brought substantial benefits to host countries' financial systems in terms of efficiency and stability. But, on the other hand, it has also brought to the forefront issues related to the management of country risk and the assessment of conditions in host country financial systems. The report also looks at risk management issues for investing financial institutions as well as for authorities in charge of financial stability and public policy in general. At the same time, the report acknowledges notable differences in the involvement of foreign-owned financial institutions in the financial sectors in emerging Asia, central and eastern Europe (CEE) and Latin America. Recognising the potential relevance of regional factors in the assessment of FSFDI, the CGFS organised follow-up workshops to explore issues raised in the CGFS report with a broader range of central banks in these three regions. The workshops were held in Seoul (hosted by the Bank of Korea), Mexico City (hosted by the Bank of Mexico) and Warsaw (hosted by the National Bank of Poland) in 2004. They were chaired by Roger W Ferguson Jr, Chairman of the CGFS and Vice Chairman of the Board of Governors of the Federal Reserve System. In total, senior representatives from 37 central banks participated in the workshops, together with a number of representatives from the private sector. This paper summarises the main findings of the workshops. The document is organised according to the general themes discussed: (1) experiences with FSFDI; (2) issues for private financial institutions operating in emerging market economies; and (3) issues for the authorities in charge of financial stability and public policy. Parts 1 and 3 highlight commonalities and differences in views. Part 2 presents the main points made in separate sessions with the private sector at each workshop.