Cross-Border Effects of Foreign Bank Capital on Banking Efficiency by Eduardo Jiménez-Fernández :: SSRN

Geographical proximity and the international composition of bank capital are plausible drivers of commercial-bank efficiency. Building on this premise, we assess the impact of both factors, considered individually and jointly, on the technical efficiency of commercial banks within an OLS framework and its spatial extensions. We introduce a methodology for constructing similarity matrices in fuzzy metric spaces that is consistent with traditional distance-based weight matrices. Extending prior work, the analysis examines how economic conditions in both capital-receiving and capital-origin countries shape efficiency, including indirect effects on neighboring markets. The results show that foreign bank capital generates economic contagion: countries with similar foreign-capital structures exhibit comparable efficiency dynamics. This underscores the dual influence of geographical proximity and foreign capital composition on banking efficiency. We find statistically meaningful spatial effects, particularly under similarity-based connectivity, which supports the view that efficiency is interconnected across countries through foreign-capital flows and broader macro-financial conditions.