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 integration—captured through the participation of foreign banks—in 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, Research Department in its series Research Department Publications with number 4651.
Date of creation: Feb 2010
Date of revision:
Foreign Banks; Credit; Interest Rates; Financial Shocks;
Find related papers by JEL classification:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-13 (All new papers)
- NEP-BAN-2010-02-13 (Banking)
- NEP-CBA-2010-02-13 (Central Banking)
- NEP-CWA-2010-02-13 (Central & Western Asia)
- NEP-MON-2010-02-13 (Monetary Economics)
- NEP-OPM-2010-02-13 (Open Economy Macroeconomic)
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