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The Lending Channel in Emerging Economies

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Author Info

  • Francisco F. Vázquez
  • Carmen Reinhart
  • Marco Arena

Abstract

This paper exploits a panel dataset comprising 1,565 banks in 20 emerging countries during 1989- 2001 and compares the response of the volume of loans and the rates on loans and deposits to various measures of monetary conditions across domestic and foreign banks. It also looks for systematic differences in the behavior of domestic and foreign banks during periods of financial distress and tranquil times. Using differences in bank ownership as a proxy for financial constraints, the paper finds weak evidence that foreign banks have a lower sensitivity of credit to monetary conditions relative to their domestic competitors, with the differences driven by banks with lower asset liquidity and/or capitalization. The lending and deposit rates of foreign banks tend to be smoother during periods of financial distress. However, the differences across domestic and foreign banks do not appear to be strong. These results provide weak support to the existence of supply-side effects in credit markets and suggest that foreign bank entry in emerging countries may have contributed somewhat to stability in credit markets.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/48.

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Length: 52
Date of creation: 01 Mar 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/48

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Related research

Keywords: Banking; Emerging markets; reserve requirements; reserve requirement; money market; monetary conditions; central bank; deposit growth; deposit rates; money market rates; money market rate; monetary policy; marginal reserve requirement; deposit rate; financial institutions; monetary fund; international financial statistics; liquidity ratio; monetary transmission; monetary authority; bonds; currency crises; liquid asset; currency crisis; financial statements; financial sector; monetary shocks; minimum reserve requirement; financial stability; international interest rates; money markets; equity capital; monetary authority of singapore; transmission of monetary policy; nominal exchange rate; legal reserve requirement; public bonds; monetary economics; aggregate demand; stock market decline; bank bonds; financial globalization; reserve ratios; stock market; financial deregulation; marginal reserve requirements; financial liberalization; financial resources; financial services; monetary disturbances; monetary transmission mechanism; financial system; contractionary monetary policy; money supply; government bonds; financial economics;

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References

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  1. Linda Goldberg & B. Gerard Dages & Daniel Kinney, 2000. "Foreign and Domestic Bank Participation in Emerging Markets: Lessons from Mexico and Argentina," NBER Working Papers 7714, National Bureau of Economic Research, Inc.
  2. Linda S. Goldberg, 2001. "When is U.S. bank lending to emerging markets volatile?," Staff Reports 119, Federal Reserve Bank of New York.
  3. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March.
  4. Kishan, Ruby P & Opiela, Timothy P, 2000. "Bank Size, Bank Capital, and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 121-41, February.
  5. Adolfo Barajas & Natalia Salazar & Roberto Steiner, 1999. "Foreign Investment in Colombia's Financial Sector," IMF Working Papers 99/150, International Monetary Fund.
  6. Joe Peek & Eric S. Rosengren, 1996. "The international transmission of financial shocks: the case of Japan," Working Papers 96-1, Federal Reserve Bank of Boston.
  7. Jennifer S. Crystal & B. Gerard Dages & Linda S. Goldberg, 2001. "Does foreign ownership contribute to sounder banks in emerging markets? the Latin American experience," Staff Reports 137, Federal Reserve Bank of New York.
  8. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May.
  9. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
  10. Reinhart, Carmen & Reinhart, Vincent, 1999. "On the use of reserve requirements in dealing with capital flow problems," MPRA Paper 13703, University Library of Munich, Germany.
  11. Jayaratne, Jith & Morgan, Donald P, 2000. "Capital Market Frictions and Deposit Constraints at Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 74-92, February.
  12. Enrica Detragiache & Poonam Gupta, 2004. "Foreign Banks in Emerging Market Crises," IMF Working Papers 04/129, International Monetary Fund.
  13. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  14. Sebastian Edwards & Carlos A. Végh, 1997. "Banks and Macroeconomic Disturbances Under Predetermined Exchange Rates," CEMA Working Papers: Serie Documentos de Trabajo. 115, Universidad del CEMA.
  15. Houston, Joel & James, Christopher & Marcus, David, 1997. "Capital market frictions and the role of internal capital markets in banking," Journal of Financial Economics, Elsevier, vol. 46(2), pages 135-164, November.
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