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Multinational banking and the international transmission of financial shocks: Evidence from foreign bank subsidiaries

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  • Jeon, Bang Nam
  • Olivero, María Pía
  • Wu, Ji

Abstract

Using bank-level data on 368 foreign subsidiaries of 68 multinational banks in 47 emerging economies during 1994–2008, we present consistent evidence that internal capital markets in multinational banking contribute to the transmission of financial shocks from parent banks to foreign subsidiaries. We find that internal capital markets transmit favorable and adverse shocks by affecting subsidiaries’ reliance on their own internal funds for lending. We also find that the transmission of financial shocks varies across types of shocks; is strongest among subsidiaries in Central and Eastern Europe, followed by Asia and Latin America; is global rather than regional; and becomes more conspicuous in recent years. We also explore various conditions under which the international transmission of financial shocks via internal capital markets in multinational banking is stronger, including the subsidiaries’ reliance on funds from their parent bank, the subsidiaries’ entry mode, and the capital account openness and banking market structure in host countries.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 3 ()
Pages: 952-972

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Handle: RePEc:eee:jbfina:v:37:y:2013:i:3:p:952-972

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Keywords: Internal capital markets; Multinational banking; Transmission of financial shocks;

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Cited by:
  1. Georgios Efthyvoulou & Canan Yildirim, 2013. "Market Power in CEE Banking Sectors and the Impact of the Global Financial Crisis," CASE Network Studies and Analyses, CASE-Center for Social and Economic Research 0452, CASE-Center for Social and Economic Research.
  2. Elisa Luciano & Clas Wihlborg, 2013. "The Organization of Bank Affiliates; A Theoretical Perspective on Risk and Efficiency," Carlo Alberto Notebooks, Collegio Carlo Alberto 322, Collegio Carlo Alberto.
  3. Allen, Franklin & Jackowicz, Krzysztof & Kowalewski, Oskar, 2013. "The effects of foreign and government ownership on bank lending behavior during a crisis in Central and Eastern Europe," MPRA Paper 48059, University Library of Munich, Germany.
  4. Bang Nam Jeon & Ji Wu, 2014. "The Role of Foreign Banks in Monetary Policy Transmission: Evidence from Asia during the Crisis of 2008-9," Working Papers 012014, Hong Kong Institute for Monetary Research.
  5. Jeon, Bang Nam & Lim, Hosung & Wu, Ji, 2014. "The impact of foreign banks on monetary policy transmission during the global financial crisis of 2008-2009: Evidence from Korea," School of Economics Working Paper Series, LeBow College of Business, Drexel University 2014-7, LeBow College of Business, Drexel University.
  6. Bertay, A.C., 2014. "The Transmission of Real Estate Shocks Through Multinational Banks," Discussion Paper, Tilburg University, Center for Economic Research 2014-011, Tilburg University, Center for Economic Research.

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