Abstract
How do foreign banks respond to financial crises? Does their response depend on their organizational form, size, and nationality? Do foreign banks perform better than domestic banks? In this chapter, we address all these questions by examining the performance of banks operating in the Luxembourg financial center between 1995 and 2010. Performance is analyzed in terms of productivity change, along with efficiency and technical changes, estimated by Data Envelopment Analysis (DEA)-based Malmquist Index. The analysis carries policy implications for bank regulators in both home and host countries and provides insight into (a) the choice between establishing a branch or a subsidiary and (b) the optimal bank size to take advantages in productivity when developing cross-border activities through the financial center. Moreover, for the local regulators it provides insight into the foreign country with a banking sector more productive and on which the host country might rely more.