IDEAS home Printed from https://ideas.repec.org/p/diw/diwwpp/dp1411.html
   My bibliography  Save this paper

Drivers of Structural Change in Cross-Border Banking since the Global Financial Crisis

Author

Listed:
  • Franziska Bremus
  • Marcel Fratzscher

Abstract

The paper analyzes the effects of changes to regulatory policy and to monetary policy on cross-border bank lending since the global financial crisis. Cross-border bank lending has decreased, and the home bias in the credit portfolio of banks has risen sharply, especially among banks in the euro area. Our results suggest that expansionary monetary policy in the source countries – as measured by the change in reserves held at central banks - has encouraged cross-border lending, both in euro area and non-euro area countries. Regarding regulatory policy, increases in financial supervisory power or independence of the supervisory authorities have encouraged credit outflows from source countries. The findings thus underline the importance of regulatory arbitrage as a driver of cross-border bank flows since the global financial crisis. However, in the euro area, arbitrage in capital stringency was linked to lower cross-border lending since the crisis.

Suggested Citation

  • Franziska Bremus & Marcel Fratzscher, 2014. "Drivers of Structural Change in Cross-Border Banking since the Global Financial Crisis," Discussion Papers of DIW Berlin 1411, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1411
    as

    Download full text from publisher

    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.483458.de/dp1411.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Joern Kleinert & Bettina Brueggemann & Esteban Prieto, 2012. "The Ideal Loan and the Patterns of Cross-Border Bank Lending," Graz Economics Papers 2012-03, University of Graz, Department of Economics.
    2. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    3. Cetorelli, Nicola & Goldberg, Linda S., 2012. "Liquidity management of U.S. global banks: Internal capital markets in the great recession," Journal of International Economics, Elsevier, vol. 88(2), pages 299-311.
    4. Papaioannou, Elias, 2009. "What drives international financial flows? Politics, institutions and other determinants," Journal of Development Economics, Elsevier, vol. 88(2), pages 269-281, March.
    5. Düwel, Cornelia & Frey, Rainer & Lipponer, Alexander, 2011. "Cross-border bank lending, risk aversion and the financial crisis," Discussion Paper Series 1: Economic Studies 2011,29, Deutsche Bundesbank.
    6. Bremus, Franziska M., 2015. "Cross-border banking, bank market structures and market power: Theory and cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 242-259.
    7. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
    8. Rose, Andrew & Wieladek, Tomasz, 2011. "Financial protectionism: the first tests," Discussion Papers 32, Monetary Policy Committee Unit, Bank of England.
    9. repec:ebd:wpaper:142 is not listed on IDEAS
    10. Joel F. Houston & Chen Lin & Yue Ma, 2012. "Regulatory Arbitrage and International Bank Flows," Journal of Finance, American Finance Association, vol. 67(5), pages 1845-1895, October.
    11. Valentina Bruno & Hyun Song Shin, 2013. "Capital Flows, Cross-Border Banking and Global Liquidity," Working Papers 1468, Princeton University, Department of Economics, Center for Economic Policy Studies..
    12. Lane, Philip R., 2013. "Capital Flows in the Euro Area," CEPR Discussion Papers 9493, C.E.P.R. Discussion Papers.
    13. Fratzscher, Marcel & Lo Duca, Marco & Straub, Roland, 2012. "A global monetary tsunami? On the spillovers of US Quantitative Easing," CEPR Discussion Papers 9195, C.E.P.R. Discussion Papers.
    14. Gian‐Maria Milesi‐Ferretti & Cédric Tille, 2011. "The great retrenchment: international capital flows during the global financial crisis," Economic Policy, CEPR;CES;MSH, vol. 26(66), pages 285-342, April.
    15. Johannes Pockrandt & Sören Radde, 2012. "Need for Reform of EU Banking: Decoupling the Solvency of Banks and Sovereigns," DIW Economic Bulletin, DIW Berlin, German Institute for Economic Research, vol. 2(11), pages 11-18.
    16. Barth, James R. & Caprio, Gerard, Jr. & Levine, Ross, 2008. "Bank regulations are changing : for better or worse ?," Policy Research Working Paper Series 4646, The World Bank.
    17. Todd Keister & James J. McAndrews, 2009. "Why are banks holding so many excess reserves?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 15(Dec).
    18. Nicola Cetorelli & Linda S Goldberg, 2011. "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(1), pages 41-76, April.
    19. Giannetti, Mariassunta & Laeven, Luc, 2012. "The flight home effect: Evidence from the syndicated loan market during financial crises," Journal of Financial Economics, Elsevier, vol. 104(1), pages 23-43.
    20. Fidora, Michael & Fratzscher, Marcel & Thimann, Christian, 2007. "Home bias in global bond and equity markets: The role of real exchange rate volatility," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 631-655, June.
    21. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, vol. 87(2), pages 205-215.
    22. James R. Barth & Gerard Caprio & Ross Levine, 2013. "Bank regulation and supervision in 180 countries from 1999 to 2011," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 5(2), pages 111-219, May.
    23. Gerard Caprio & James Barth & Ross Levine, 2008. "Bank Regulations Are Changing: But For Better or Worse?," Center for Development Economics 2008-04, Department of Economics, Williams College.
    24. repec:pri:cepsud:237a%20shin is not listed on IDEAS
    25. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 791-819.
    26. James E. Anderson & Douglas Marcouiller, 2002. "Insecurity And The Pattern Of Trade: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 342-352, May.
    27. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2010. "Financial Institutions and Markets across Countries and over Time: The Updated Financial Development and Structure Database," World Bank Economic Review, World Bank Group, vol. 24(1), pages 77-92, January.
    28. Philip Lane, 2013. "Financial Globalisation and the Crisis," Open Economies Review, Springer, vol. 24(3), pages 555-580, July.
    29. James R Barth & Gerard Caprio & Ross Levine, 2008. "Bank Regulations are Changing: For Better or Worse?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 50(4), pages 537-563, December.
    30. Ralph De Haas & Neeltje Van Horen, 2012. "International Shock Transmission after the Lehman Brothers Collapse: Evidence from Syndicated Lending," American Economic Review, American Economic Association, vol. 102(3), pages 231-237, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Cross-border bank lending; financial integration; regulation; arbitrage; monetary policy; home bias;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp1411. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bibliothek). General contact details of provider: http://edirc.repec.org/data/diwbede.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.