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Multinational Banking and the International Transmission of Financial Shocks: Evidence from Foreign Bank Subsidiaries

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  • Jeon, Bang

    ()
    (Department of Economics & International Business LeBow College of Business Drexel University)

  • Olivero, María

    ()
    (Department of Economics & International Business LeBow College of Business Drexel University)

  • Wu, Ji

    ()
    (School of Business Administration Pennsylvania State University-Harrisburg)

Abstract

Using bank-level data on 368 foreign subsidiaries of 68 multinational banks in 47 emerging economies during 1994-2008, we present consistent evidence that internal capital markets in multinational banking contribute to the transmission of financial shocks from parent banks to foreign subsidiaries. We find that internal capital markets transmit favorable and adverse shocks by affecting subsidiaries’ reliance on their own internal funds for lending. We also find that the transmission of financial shocks varies across types of shocks; is strongest among subsidiaries in Central and Eastern Europe,followed by Asia and Latin America; is global rather than regional; and became more conspicuous in recent years than before. We also explore various conditions under which the international transmission of financial shocks via internal capital markets in multinational banking is stronger, including the subsidiaries’ reliance on funds from their parent bank, the subsidiaries’ entry mode, and the capital account openness and banking market structure in host countries.

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Bibliographic Info

Paper provided by LeBow College of Business, Drexel University in its series School of Economics Working Paper Series with number 2012-2.

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Length: 66 pages
Date of creation: 07 May 2012
Date of revision:
Handle: RePEc:ris:drxlwp:2012_002

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Web page: http://www.lebow.drexel.edu/
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Keywords: Internal capital markets; Multinational banking; Transmission of financial shocks;

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Cited by:
  1. Elisa Luciano & Clas Wihlborg, 2013. "The Organization of Bank Affiliates; A Theoretical Perspective on Risk and Efficiency," ICER Working Papers 06-2013, ICER - International Centre for Economic Research.
  2. Bertay, A.C., 2014. "The Transmission of Real Estate Shocks Through Multinational Banks," Discussion Paper 2014-011, Tilburg University, Center for Economic Research.
  3. Jeon, Bang Nam & Lim, Hosung & Wu, Ji, 2014. "The impact of foreign banks on monetary policy transmission during the global financial crisis of 2008-2009: Evidence from Korea," School of Economics Working Paper Series 2014-7, LeBow College of Business, Drexel University.
  4. Bang Nam Jeon & Ji Wu, 2014. "The Role of Foreign Banks in Monetary Policy Transmission: Evidence from Asia during the Crisis of 2008-9," Working Papers 012014, Hong Kong Institute for Monetary Research.
  5. Efthyvoulou, Georgios & Yildirim, Canan, 2014. "Market power in CEE banking sectors and the impact of the global financial crisis," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 11-27.
  6. Allen, Franklin & Jackowicz, Krzysztof & Kowalewski, Oskar, 2013. "The effects of foreign and government ownership on bank lending behavior during a crisis in Central and Eastern Europe," MPRA Paper 48059, University Library of Munich, Germany.

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