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Do foreign-owned banks affect banking system liquidity risk?

  • Dinger, Valeriya

Existing empirical research shows that foreign-owned banks play a stabilizing role in emerging economies' banking systems. Anecdotal evidence suggests that this stabilizing role can be attributed to transnational banks' access to more diversified sources of liquidity. There exists, however, no empirical evidence so far on transnational banks' liquidity behavior and its effect on aggregate banking system liquidity. This paper aims at closing this gap. First, we look at the liquid assets holdings of transnational banks and show that in "normal" times they are significantly lower but in crises times higher than those of single-market banks. Second, we find evidence that transnational banks' presence significantly reduces the risk of aggregate liquidity shortages in emerging economies.

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File URL: http://www.sciencedirect.com/science/article/B6WHV-4WGK6P2-1/2/b1689790a4f55536d071c23e04bda562
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Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 37 (2009)
Issue (Month): 4 (December)
Pages: 647-657

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Handle: RePEc:eee:jcecon:v:37:y:2009:i:4:p:647-657
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622864

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  1. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  2. Douglas W. Diamond & Raghuram G. Rajan, 2002. "Liquidity Shortages and Banking Crises," NBER Working Papers 8937, National Bureau of Economic Research, Inc.
  3. Claeys, Sophie & Hainz, Christa, 2006. "Acquisition versus greenfield: the impact of the mode of foreign bank entry on information and bank lending rates," Working Paper Series 0653, European Central Bank.
  4. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  5. Enrica Detragiache & Poonam Gupta, 2004. "Foreign Banks in Emerging Market Crises; Evidence From Malaysia," IMF Working Papers 04/129, International Monetary Fund.
  6. Jürgen Von Hagen & Tai-Kuang Ho, 2007. "Money Market Pressure and the Determinants of Banking Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1037-1066, 08.
  7. Freixas, X. & Holthausen, C., 2001. "Interbank Market Integration under Asymmetric Information," Papers 74, Quebec a Montreal - Recherche en gestion.
  8. Holmstrom, B & Tirole, J, 1996. "Private and Public Supply of Liquidity," Working papers 96-21, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Carletti, Elena & Hartmann, Philipp & Spagnolo, Giancarlo, 2005. "Bank Mergers, Competition and Liquidity," Working Paper Series 182, Sveriges Riksbank (Central Bank of Sweden).
  10. Buch, Claudia M. & Lipponer, Alexander, 2007. "FDI versus exports: Evidence from German banks," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 805-826, March.
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