Drivers of cross-border bank claims: The role of foreign-owned banks in emerging countries

Studies of the determinants of cross-border bank claims are based on the economic situations of the lending and borrowing countries – the traditional push/pull macroeconomic factors – but fail to take into account the situation of the international banks that are at the origin of these flows and the presence of their subsidiaries in emerging countries. They also fail to explain the huge decrease in cross-border bank flows after the 2008 global financial crisis. In this paper, we analyze the determinants of cross-border bank claims on a panel of 28 emerging countries for three cases and transitional countries (claims on all sectors, claims on the nonbank sector, and interbank loans) and explicitly integrate banking determinants. Thus, we account for the financial situation of international lender banks and the existence of foreign locations in emerging countries as a potential pull stabilizing factor. We show that the presence of foreign banks in emerging countries is clearly a factor of attraction for cross-border bank claims. It remains when we explicitly take into account the 2008 crisis but to a lower extent and in favor of interbank loans. This may be proof of support from the international parent banks to their affiliates. Last, the financial situation of international banks, notably their liquidity and ability to respect prudential rules, also plays a role in their financing strategies in emerging countries.