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Dissecting foreign bank lending behavior during the 2008-2009 crisis

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  • Choi, Moon Jung
  • Gutierrez, Eva
  • Peria, Maria Soledad Martinez
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    Abstract

    This paper analyzes the lending behavior of foreign-owned banks during the recent global crisis. Using bank-level panel data for countries in Central and Eastern Europe, East Asia, and Latin America, the paper explores the role of affiliate and parent financial characteristics, host location, as well as the impact of parent geographic origin and reach on foreign banks'credit growth. Overall, the analysis finds robust evidence that foreign banks curtailed the growth of credit relative to other banks, independent of the host region. Banks from the United States reduced loan growth less than other parent banks. Neither the global nor regional reach of parent banks influenced the lending growth of foreign affiliates. However, the funding structure of foreign bank affiliates and the capitalization of parent banks do help explain the lending behavior of foreign banks during the global crisis. Although not the focus of the paper, it also finds that government-owned banks played a countercyclical role in all regions.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6674.

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    Date of creation: 01 Oct 2013
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    Handle: RePEc:wbk:wbrwps:6674

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    Keywords: Banks&Banking Reform; Access to Finance; Debt Markets; Bankruptcy and Resolution of Financial Distress; Financial Intermediation;

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    1. Nicola Cetorelli & Linda S. Goldberg, 2010. "Global Banks and International Shock Transmission: Evidence from the Crisis," NBER Working Papers 15974, National Bureau of Economic Research, Inc.
    2. Cull, Robert & Martínez Pería, María Soledad, 2013. "Bank ownership and lending patterns during the 2008–2009 financial crisis: Evidence from Latin America and Eastern Europe," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(12), pages 4861-4878.
    3. de Haas, Ralph & van Horen, Neeltje, 2012. "International Shock Transmission after the Lehman Brothers Collapse. Evidence from Syndicated Lending," MPRA Paper 36001, University Library of Munich, Germany.
    4. Ralph de Haas & Neeltje van Horen, 2011. "Running for the Exit: International Banks and Crisis Transmission," DNB Working Papers, Netherlands Central Bank, Research Department 279, Netherlands Central Bank, Research Department.
    5. Ralph de Haas & Iman van Lelyveld, 2003. "Foreign Banks and Credit Stability in Central and Eastern Europe: A Panel Data Analysis," DNB Staff Reports (discontinued), Netherlands Central Bank 109, Netherlands Central Bank.
    6. Fungáčová, Zuzana & Herrala, Risto & Weill, Laurent, 2013. "The influence of bank ownership on credit supply: Evidence from the recent financial crisis," Emerging Markets Review, Elsevier, Elsevier, vol. 15(C), pages 136-147.
    7. Detragiache, Enrica & Gupta, Poonam, 2006. "Foreign banks in emerging market crises: Evidence from Malaysia," Journal of Financial Stability, Elsevier, Elsevier, vol. 2(3), pages 217-242, October.
    8. Neeltje van Horen & Stijn Claessens, 2012. "Foreign Banks," IMF Working Papers 12/10, International Monetary Fund.
    9. Eric S. Rosengren & Joe Peek, 2000. "Collateral Damage: Effects of the Japanese Bank Crisis on Real Activity in the United States," American Economic Review, American Economic Association, American Economic Association, vol. 90(1), pages 30-45, March.
    10. Giannetti, Mariassunta & Laeven, Luc, 2012. "The flight home effect: Evidence from the syndicated loan market during financial crises," Journal of Financial Economics, Elsevier, Elsevier, vol. 104(1), pages 23-43.
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