This paper analyses how entry by an international bank into a developing economy aÞects the credit market equilibrium … negative net present value projects. The agency problem has an asymmetric impact on the local and the foreign bank. The model … illustrates how the diversification of the foreign bank's loan portfolio eliminates the agency problem. In contrast, in certain …

foreign bank's mode of entry on the stability of the local financial sector. Banks exert costly effort when they extend credit … foreign bank.s loan portfolio mitigates the agency problem, and permits the foreign bank to extend credit during downturns … where the local banks are forced to contract credit. The risk management framework employed by the foreign bank creates a …