Running head: FINANCIAL PROTECTIONISM
Protectionism: Financial Protectionism
Debbie Wilson
Liberty University
FINANCIAL PROTECTIONISM
Key Term and Why I Am Interested
This week’s key term choice of “protectionism” gives me the opportunity to learn and
broaden my accounting and financial knowledge. Not really understanding what protectionism
meant, my initial research uncovered several different types of protectionism. This review will
focus on financial protectionism since its connection finances piqued my interest. I found it
interesting how banks give loans to borrowers in different countries. It made me wonder how this
works and how it changed after the economic downfall. Were banks able to continue giving loans
out across borders or did protectionism hinder this process?
Explanation of the Key Term
To get a better understand the difference between of protectionism and financial
protectionism, I have provided definitions of both. Satterlee (2014), defines protectionism as “the
economic policy of restraining trade between nations”. Financial protectionism takes this
definition and applies it to financial institutions policies. Financial protectionism according to
Rose and Wieladek (2014) is “a change in the preferences of domestic financial institutions,
induced by public policy that leads them to discriminate against foreign households and/or
enterprises”. The only difference between the two definitions is that one is a general definition
and the other focuses solely on one sector. The change that is searched for in financial
protectionism is how banks are lending. Financial protectionism exists if “domestic banks lend
less to foreign borrowers, charge higher interest rates, or both” (Rose & Wieladek, 2014).
Major Article Summary
Financial Protectionism? First Evidence examines large banking companies to search for
a decrease in the amount of loans distributed and/or an increase to the price of the loans that the
banks give out to borrowers in a different country. The data set used in the research covered all
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banks, both foreign and domestic, that are operated in the United Kingdom. The United Kingdom
was chosen as the area for research because it is a rich country with a large international financial
sector. The time frame used was during the most recent economic downfall between 2008 and
2009. Their analysis stretched as far back as 1997 and went to 2010 to provide more accurate
results. According to Rose and Wieladek (2014), the research concludes that “after
nationalization, foreign banks reduced British lending as a share of their total lending by about
11%”. Reminding ourselves that financial protectionism means to find the change in a financial
institution, induced by public policy that leads them to discriminate against foreign households
and/or enterprises (Rose & Wieladek, 2014). Research shows that British banks raised the
proportion of British loans by almost 3% where foreign banks decreased their British loan mix
by the same amount (Rose & Wieladek, 2014). Another finding was that foreign-nationalized
banks increased their interest rates on new loans during this time.
In conclusion from the research, financial protectionism was existent in British and
foreign-nationalized banks. Financial protectionism helps prevent the banks from having
borrowers in different countries. It enables banks to have a control on how loans are distributed
during economic hard times and keeps people from having the ability to borrow cross borders.
This helps protect the banks and keeps them from experiencing more of an economic problem
then what has occurred. For future research I would agree with Rose and Wieladek (2014) to
investigate why these banks chose to act this way and if there were any consequences for
welfare.
Discussion
A. As we learn more about international business, I think it is important to dig a little deeper
and not stop at the surface of the term. I could have defined only protectionism but while
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researching realized there were other types. I was able to stretch my learning about
protectionism and how it effects other industries. I think learning about the financial
sector is important for me since I am pursuing my Master’s in Accounting. Financial
protectionism allows for banks to discriminate again foreign borrowers. It keeps them
protected during an economic hardship by increasing their interest rates and limiting who
they allow to take out loan. I see not only financial protectionism but also protectionism
as a benefit to certain companies because it allows them to pick and choose trade or loan
customers.
B. The cited work relates to each of the other article. Each article discusses how banks
pursued financial protectionism during the recent economic downfall. Canada has only
five large operating banks. “This is not because they offer Canadian businesses and
consumers the best value, but rather they are protected from foreign competition through
the Bank Act, which limits the activities of foreign banks in Canada”, (Young, 2014).
Financial protectionism falls hand in hand here because the Bank Act provides forms of
intervention that discriminate between foreign firms and their domestic rivals. Larch and
Lechthaler (2011) state, “before the outbreak of the financial crisis in September 2008,
starting with the failure and merging of a number of American financial companies, only
very few protectionist measures were taken. Since then, we have seen a sharp increase,
specifically in 2009 and 2010. In mid-2011 the number of protectionist measures started
to stabilize”. The financial protectionism was able to protect domestic companies and
their workers by redirecting the demand towards the companies’ products. Protectionism
against trading happens often, especially during an economic hardship. “When the global
economy teeters on the verge of the collapse, countries resort to various kinds of trade-
restrictive measure as a pro to their domestic economy”, Jie Cai (2014). This is to
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promote the purchase of domestic products to help increase sales within their own
countries. According to Jedidi and Mensi (2011), “the quality of regulation and the
guarantees put forth to protect investors are key factors of the success of a financial
market”. The regulation they are referring to here is financial protectionism. It provides
protection to the investors while helping the company become successful again. In
conclusion, all four articles interpret financial protectionism the same and argue that
financial protectionism is put into place to help domestic banking companies in an
economic downfall.
References
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Jedidi, F. K., & Mensi, S. The Financial Protectionism-Financial Integration Dilemma through
Capital Mobility: Economic Performance vs Financial Crises. Retrieved from
http://www.liberty.edu:2048/login?
url=https://www.researchgate.net/profile/Sami_Mensi/publication/265268758_The_Finan
cial_Protectionism-
Financial_Integration_Dilemma_through_Capital_Mobility_Economic_Performance_vs_
Financial_Crises/links/
Jie Cai, L. A. (2014). Is protectionism rational under the financial crisis? analysis from the
perspective of international political relations. Asian Economic and Financial Review,
4(3), 278-299. Retrieved from
http://www.liberty.edu:2048/login?
url=http://search.proquest.com.ezproxy.liberty.edu:2048/docview/1520183322?pq-
origsite=summon&accountid=12085
Larch, M., & Lechthaler, W. (2011). "Buy national" and protectionism in the great recession –
can it work? Intereconomics, 46(4), 205-208. Retrieved from
http://www.liberty.edu:2048/login?
url=http://search.proquest.com.ezproxy.liberty.edu:2048/docview/882644801?pq-
origsite=summon
Rose, A. K., & Wieladek, T. (2014). Financial Protectionism? First Evidence. Journal Of
Finance, 69(5), 2127-2149. Retrieved from
http://www.liberty.edu:2048/login?url=http://rx9vh3hy4r.search.serialssolutions.com/?
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8&rfr_id=info:sid/summon.serialssolutions.com&rft_val_fmt=info:ofi/fmt:kev:mtx:journ
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Young, K. (2014). The Complex and Covert Web of Financial Protectionism. Business And
Politics, 16(4), 579-613. Retrieved from
http://www.liberty.edu:2048/login?url=http://rx9vh3hy4r.search.serialssolutions.com/?
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