Financial Integration and Foreign Banks in Latin America: How Do They Impact the Transmission of External Financial Shocks?
AbstractThis paper explores the impact of international financial integration on credit markets in Latin America, using a cross-country dataset covering 17 countries between 1996 and 2008. It is found that financial integration amplifies the impact of international financial shocks on aggregate credit and interest rate fluctuations. Nonetheless, the net impact of integration on deepening credit markets dominates for the large majority of states of nature. The paper also uses a detailed bank-level dataset that covers more than 500 banks for a similar time period to explore the role of financial integrationcaptured through the participation of foreign banksin propagating external shocks. It is found that interest rates charged and loans supplied by foreign-owned banks respond more to external financial shocks than those supplied by domestically owned banks. This does not hold for all foreign banks. Spanish banks in the sample behave more like domestic banks and do not amplify the impact of foreign shocks on credit and interest rates.
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Bibliographic InfoPaper provided by Inter-American Development Bank in its series IDB Publications with number 6780.
Date of creation: Feb 2010
Date of revision:
Financial Crises & Economic Stabilization; Financial Sector; IDB-WP-116;
Other versions of this item:
- Arturo Galindo & Alejandro Izquierdo & Liliana Rojas-Suarez, 2010. "Financial Integration and Foreign Banks in Latin America: How Do They Impact the Transmission of External Financial Shocks?," Research Department Publications 4651, Inter-American Development Bank, Research Department.
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G0 - Financial Economics - - General
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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