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Multinational Banks and the Global Financial Crisis. Weathering the Perfect Storm?

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  • Ralph de Haas
  • Iman van Lelyveld

Abstract

We use data on the 48 largest multinational banking groups to compare the lending of their 199 foreign subsidiaries during the Great Recession with lending by a benchmark group of 202 domestic banks. Contrary to earlier, more contained crises, parent banks were not a significant source of strength to their subsidiaries during the 2008-09 crisis. As a result, multinational bank subsidiaries had to slow down credit growth about twice as fast as domestic banks. This was in particular the case for subsidiaries of banking groups that relied more on wholesale market funding. Domestic banks were better equipped to continue lending because of their greater use of deposits, a relatively stable funding source during the crisis.We conclude that while multinational banks may contribute to financial stability during local crisis episodes, they also increase the risk of 'importing' instability from abroad.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 322.

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Date of creation: Nov 2011
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Handle: RePEc:dnb:dnbwpp:322

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Keywords: Multinational banks; financial stability; crisis transmission; funding structure;

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