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How Should We Bank With Foreigners? An Empirical Assessment of Lending Behaviour of International Banks to Six East Asian Countries

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  • Victor Pontines

    ()

  • Reza Siregar

    ()

Abstract

The possible crucial role of international bank lending in the transmission of adverse economic disturbance from advanced economies to emerging economies in the recent global financial crisis has once again placed this type of capital flows into sharper scrutiny both in academic and policy discussions. We construct macro-and micro-panel data on international bank lending to six Asian economies, viz., Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand, to analyze a number of objectives. We first examine the influence of a number of critical determinants not only to overall international bank lending but also to cross-border bank lending, and obtained one critical finding in this part of the study that cross-border lending by international banks tend to pull-out from host economies during difficult times in source economies, whereas such retrenchment are not evident on an aggregated basis. This may suggest that encouraging brick-and-mortar affiliates of international banks to ‘set up shop’ in recipient economies may be the judicious choice for these economies. We next critically examine the difference between subsidiaries and branches of international banks in terms of their ability to shield themselves from the financial difficulties of their global parent banks and thus their ability to continue lending in destination markets. According to our results, foreign bank subsidiaries are more capable in this regard. This finding carries with it the obvious attraction of favouring an organizational banking structure that is biased towards subsidiaries. However, national banking regulators should remember that apart from encouraging a host of other domestic and cross-border initiatives, encouraging the entry of brick-and mortar subsidiaries of international banks should not viewed as a panacea to the financial stability concerns not only in Asia but also across emerging markets in general.

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File URL: http://cama.crawford.anu.edu.au/pdf/working-papers/2012/042012.pdf
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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2012-04.

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Length: 40 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:een:camaaa:2012-04

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  1. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Herrmann, Sabine & Mihaljek, Dubravko, 2011. "The determinants of cross-border bank flows to emerging markets: New empirical evidence on the spread of financial crises," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 3/2011, Bank of Finland, Institute for Economies in Transition.
  3. Tamim Bayoumi & Ola Melander, 2008. "Credit Matters," IMF Working Papers, International Monetary Fund 08/169, International Monetary Fund.
  4. Reza Y Siregar & Keen Meng Choy, 2010. "Determinants of International Bank Lending from the Developed World to East Asia," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 484-516, June.
  5. Nicola Cetorelli & Linda S Goldberg, 2011. "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review, Palgrave Macmillan, Palgrave Macmillan, vol. 59(1), pages 41-76, April.
  6. Jonathan Fiechter & Inci Ötker & Anna Ilyina & Michael Hsu & Andre Santos & Jay Surti, 2011. "Subsidiaries or Branches," IMF Staff Discussion Notes, International Monetary Fund 11/04, International Monetary Fund.
  7. Ralph De Haas & Neeltje Van Horen, 2011. "Running for the exit: international banks and crisis transmission," Working Papers, European Bank for Reconstruction and Development, Office of the Chief Economist 124, European Bank for Reconstruction and Development, Office of the Chief Economist.
  8. Ralph De Haas & Iman Van Lelyveld, 2008. "Internal capital markets and lending by multinational bank subsidiaries," Working Papers, European Bank for Reconstruction and Development, Office of the Chief Economist 105, European Bank for Reconstruction and Development, Office of the Chief Economist.
  9. Ralph de Haas & Iman van Lelyveld, 2003. "Foreign Banks and Credit Stability in Central and Eastern Europe: A Panel Data Analysis," DNB Staff Reports (discontinued), Netherlands Central Bank 109, Netherlands Central Bank.
  10. Buch, Claudia M. & Carstensen, Kai & Schertler, Andrea, 2010. "Macroeconomic shocks and banks’ foreign assets," Munich Reprints in Economics, University of Munich, Department of Economics 19988, University of Munich, Department of Economics.
  11. Gopalan, Sasidaran & Rajan, Ramkishen. S, 2009. "Financial sector de-regulation in Emerging Asia: Focus on foreign bank entry," MPRA Paper 19592, University Library of Munich, Germany.
  12. Van Rijckeghem, Caroline & Weder, Beatrice, 2003. "Spillovers through banking centers: a panel data analysis of bank flows," Journal of International Money and Finance, Elsevier, Elsevier, vol. 22(4), pages 483-509, August.
  13. Elod Takats, 2011. "Cross-border bank lending to emerging market economies," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), The global crisis and financial intermediation in emerging market economies, volume 54, pages 11-29 Bank for International Settlements.
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Cited by:
  1. Nicola Cetorelli & Linda Goldberg, 2011. "Liquidity management of U.S. global banks: internal capital markets in the Great Recession," Staff Reports, Federal Reserve Bank of New York 511, Federal Reserve Bank of New York.
  2. Siregar, Reza & Wihardja, Monica, 2013. "Fragile Balance of Payment in Indonesia in the Midst of Recent Global Economic Uncertainties," MPRA Paper 49027, University Library of Munich, Germany.
  3. Siregar, Reza, 2013. "Globalized Banking Sectors: Features and Policy Implications amidst Global Uncertainties," MPRA Paper 43709, University Library of Munich, Germany.

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