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Cross-border bank lending, risk aversion and the financial crisis

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  • Düwel, Cornelia
  • Frey, Rainer
  • Lipponer, Alexander

Abstract

This study investigates the determinants of adjustments in the provision of cross-border loans by internationally active banks. For the period from 2002 to 2010, we look at quarterly transaction data (excluding valuation effects) on long-term loans issued by the largest 69 German banking groups to the private sector of 66 countries. We show that the parent bank's lending adjustment is based almost exclusively on supply-side determinants, in particular on bank-specific factors. However, foreign countries' demand and risk characteristics become more relevant when loans are distributed by banks' affiliates located abroad. Focusing on risk measures such as the parent bank's ratio of Tier I capital to risk-weighted assets, we find that rising risk aversion among banks curbed cross-border lending during the financial crisis, especially at a later stage following the collapse of Lehman Brothers. However, we find a threshold at around 11% of the Tier I capital ratio above which an increase in the ratio does not curb lending anymore. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2011,29.

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Date of creation: 2011
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Handle: RePEc:zbw:bubdp1:201129

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Keywords: cross-border lending; banks; financial crisis;

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References

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  1. Andrew K. Rose & Tomasz Wieladek, 2011. "Financial Protectionism: the First Tests," NBER Working Papers 17073, National Bureau of Economic Research, Inc.
  2. Michael Ehrmann & Leonardo Gambacorta & Jorge Martínez-Pagés & Patrick Sevestre & Andreas Worms, 2001. "Financial Systems and the Role of Banks in Monetary Policy Transmission in the Euro Area," Banco de Espa�a Working Papers 0118, Banco de Espa�a.
  3. de Haas, Ralph & van Lelyveld, Iman, 2006. "Foreign banks and credit stability in Central and Eastern Europe. A panel data analysis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(7), pages 1927-1952, July.
  4. Barba Navaretti, Giorgio & Calzolari, Giacomo & Levi, Micol & Pozzolo, Alberto, 2010. "Multinational Banking in Europe: Financial Stability and Regulatory Implications Lessons from the Financial Crisis," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7823, C.E.P.R. Discussion Papers.
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  6. Yener Altunbas & Leonardo Gambacorta & David Marqués-Ibáñez, 2009. "Bank risk and monetary policy," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 712, Bank of Italy, Economic Research and International Relations Area.
  7. Buch, Claudia M. & Koch, Cathérine Tahmee & Koetter, Michael, 2009. "Margins of international banking: is there a productivity pecking order in banking, too?," Discussion Paper Series 2: Banking and Financial Studies 2009,12, Deutsche Bundesbank, Research Centre.
  8. Houston, Joel F. & James, Christopher, 1998. "Do bank internal capital markets promote lending?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 22(6-8), pages 899-918, August.
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  10. Claudia M. Buch, 1999. "Why Do Banks Go Abroad? � Evidence from German Data," Kiel Working Papers 948, Kiel Institute for the World Economy.
  11. Koetter, Michael & Kick, Thomas, 2007. "Slippery slopes of stress: ordered failure events in German banking," Discussion Paper Series 2: Banking and Financial Studies 2007,03, Deutsche Bundesbank, Research Centre.
  12. Robert McCauley & Patrick McGuire & Goetz von Peter, 2010. "The architecture of global banking: from international to multinational?," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, March.
  13. Chuhan, Punam & Claessens, Stijn & Mamingi, Nlandu, 1998. "Equity and bond flows to Latin America and Asia: the role of global and country factors," Journal of Development Economics, Elsevier, Elsevier, vol. 55(2), pages 439-463, April.
  14. Olivero, María Pía & Li, Yuan & Jeon, Bang Nam, 2011. "Competition in banking and the lending channel: Evidence from bank-level data in Asia and Latin America," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(3), pages 560-571, March.
  15. 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.
  16. Ralph De Haas & Iman Van Lelyveld, 2008. "Internal capital markets and lending by multinational bank subsidiaries," Working Papers, European Bank for Reconstruction and Development, Office of the Chief Economist 105, European Bank for Reconstruction and Development, Office of the Chief Economist.
  17. Nicola Cetorelli & Linda S. Goldberg, 2010. "Global banks and international shock transmission: evidence from the crisis," Staff Reports, Federal Reserve Bank of New York 446, Federal Reserve Bank of New York.
  18. Serge Jeanneau & Marian Micu, 2002. "Determinants of international bank lending to emerging market countries," BIS Working Papers 112, Bank for International Settlements.
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Citations

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Cited by:
  1. Buch, Claudia M. & Koch, Cathérine Tahmee & Koetter, Michael, 2011. "Crises, rescues, and policy transmission through international banks," Discussion Paper Series 1: Economic Studies 2011,15, Deutsche Bundesbank, Research Centre.
  2. Düwel, Cornelia, 2013. "Repo funding and internal capital markets in the financial crisis," Discussion Papers 16/2013, Deutsche Bundesbank, Research Centre.
  3. Silvio Contessi & Pierangelo De Pace, 2011. "The (non-)resiliency of foreign direct investment in the United States during the 2007-2009 financial crisis," Working Papers, Federal Reserve Bank of St. Louis 2011-037, Federal Reserve Bank of St. Louis.
  4. Düwel, Cornelia & Frey, Rainer, 2012. "Competition for internal funds within multinational banks: Foreign affiliate lending in the crisis," Discussion Papers 19/2012, Deutsche Bundesbank, Research Centre.
  5. Böninghausen, Benjamin & Köhler, Matthias, 2012. "Diversification and determinants of international credit portfolios: Evidence from German banks," Discussion Papers 28/2012, Deutsche Bundesbank, Research Centre.

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