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Monitoring Costs and Multinational-Bank Lending

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  • Ralph de Haas

Abstract

We use a two-country model to examine how endogenous changes in monitoring intensity and exogenous changes in monitoring efficiency affect multinational-bank lending. First, an endogenous decline in monitoring intensity limits the amount of deposits that banks can attract. This lowers bank lending. Shocks that reduce bank capital relative to firm capital therefore have a stronger negative effect on bank lending compared to a model with exogenous monitoring intensity. Second, international differences in monitoring efficiency create a lending bias towards the country where monitoring is performed most efficiently. Multinational-bank subsidiaries that monitor efficiently attract more deposits and lend more than less efficient subsidiaries.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 088.

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Date of creation: Feb 2006
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Handle: RePEc:dnb:dnbwpp:088

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Keywords: multinational banks; monitoring; credit supply.;

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