U.S. Monetary Policy Shocks and Bank Lending in Latin America: Evidence of an International Bank Lending Channel

We examine the impact of U.S. monetary policy shocks on bank lending in five major Latin American countries where large U.S. banks have limited presence. Our analysis covers annual balance sheet data from 2000 to 2021 for all banks in these nations, utilizing a recently developed measure of U.S. monetary policy shocks by Bu et al. (2021). Our findings reveal the existence of an international bank lending channel, with a one-percentage-point increase in the Fed funds rate resulting in an average 80.6 basis-point reduction in domestic bank loan growth in these countries. Liquidity and solvency emerge as crucial factors driving variations in lending behavior among Latin American banks, with banks exhibiting stronger liquidity and solvency profiles experiencing higher loan supply growth rates. This international bank lending channel persists even in countries with minimal U.S. bank presence, leading to constrained cross-border lending activities.