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The Risks and Financial Vulnerability of Foreign Bank Ownership in CEECs: Evidence from Exchange Rate Depreciation after the Financial Crisis

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  • Jarko Fidrmuc
  • Svatopluk Kapounek

Abstract

The banking sector in Central and Eastern European countries is characterized by cross-border mergers and acquisitions. Financial integration improved firm access to international capital markets but also posed a serious challenge in terms of financial vulnerability. We use bank data to analyze the determinants of bank lending between 1998 and 2016. Our results confirm significant differences in lending behavior between domestic and foreign banks. In particular, foreign banks are more sensitive to exchange rate changes but less sensitive to domestic demand. Currency depreciation has a larger negative impact on lending by foreign banks, with a lower ratio of deposits to equity.

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  • Jarko Fidrmuc & Svatopluk Kapounek, 2020. "The Risks and Financial Vulnerability of Foreign Bank Ownership in CEECs: Evidence from Exchange Rate Depreciation after the Financial Crisis," Eastern European Economics, Taylor & Francis Journals, vol. 58(1), pages 34-48, January.
  • Handle: RePEc:mes:eaeuec:v:58:y:2020:i:1:p:34-48
    DOI: 10.1080/00128775.2019.1666412
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