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Shocks Abroad, Pain at Home? Bank-Firm Level Evidence on the International Transmission of Financial Shocks

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  • Steven Ongena
  • Jose Luis Peydro
  • Neeltje van Horen

Abstract

We study the international transmission of shocks from the banking to the real sector during the global financial crisis. For identification, we use matched bank-firm level data, including many small and medium-sized firms, in Eastern Europe and Central Asia. We find that internationally-borrowing domestic and foreign-owned banks contract their credit more during the crisis than domestic banks that are funded only locally. Firms that are dependent on credit and at the same time have a relationship with an internationally-borrowing domestic or a foreign bank (as compared to a locally-funded domestic bank) suffer more in their financing and real performance. Single-bank-relationship firms, small firms and firms with intangible assets suffer most. For credit-independent firms, there are no differential effects. Our findings suggest that financial globalization has intensified the international transmission of financial shocks with substantial real consequences

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 385.

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Date of creation: Jul 2013
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Handle: RePEc:dnb:dnbwpp:385

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Keywords: international transmission; firm real effects; foreign banks; international wholesale funding; credit shock;

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Cited by:
  1. Thorsten Beck & Hans Degryse & Ralph de Haas & Neeltje van Horen, 2014. "When Arm's Length Is Too Far. Relationship Banking over the Business Cycle," CESifo Working Paper Series 4877, CESifo Group Munich.
  2. Reinhardt, Dennis & Riddiough, Steven, 2014. "The two faces of cross-border banking flows: an investigation into the links between global risk, arms-length funding and internal capital markets," Bank of England working papers 498, Bank of England.

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