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Multinational Banks and the Drivers of Cross-Border Contagion

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  • Deyan Radev

    (Sofia University, Faculty of Economics and Business Administration)

Abstract

In this paper, we investigate the drivers of transmission of solvency and wholesale funding shocks to 84 OECD parent banks on the lending of 375 foreign subsidiaries. We find evidence for the transmission of both types of shocks. Parent undercapitalization affects the transmission of solvency shocks, while wholesale shocks transmit to subsidiaries of parents that rely primarily on wholesale funding. We further document that parent banks tend to guard investment markets at the expense of funding markets and to channel any excess liquidity to improve lending growth in lagging markets. These results have important theoretical and policy implications and add to our understanding of the transmission of solvency and wholesale shocks across borders.

Suggested Citation

  • Deyan Radev, 2021. "Multinational Banks and the Drivers of Cross-Border Contagion," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 71(2), pages 119-143, October.
    • Handle: RePEc:fau:fauart:v:71:y:2021:i:2:p:119-143
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    File URL: https://journal.fsv.cuni.cz/mag/article/show/id/1483
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    Cited by:

    1. Deyan Radev, 2024. "Global Banks and the Transmission of Shocks across Borders," Bulgarian Economic Papers bep-2024-02, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria // Center for Economic Theories and Policies at Sofia University St Kliment Ohridski, revised Jan 2024.

    More about this item

    Keywords

    commercial banks; global banks; wholesale shocks; solvency shocks; transmission; internal capital markets;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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