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Monitoring Costs and Multinational-Bank Lending

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  • Ralph de Haas

Abstract

We use a two-country model to examine how endogenous changes in monitoring intensity and exogenous changes in monitoring efficiency affect multinational-bank lending. First, an endogenous decline in monitoring intensity limits the amount of deposits that banks can attract. This lowers bank lending. Shocks that reduce bank capital relative to firm capital therefore have a stronger negative effect on bank lending compared to a model with exogenous monitoring intensity. Second, international differences in monitoring efficiency create a lending bias towards the country where monitoring is performed most efficiently. Multinational-bank subsidiaries that monitor efficiently attract more deposits and lend more than less efficient subsidiaries.

Suggested Citation

  • Ralph de Haas, 2006. "Monitoring Costs and Multinational-Bank Lending," DNB Working Papers 088, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:088
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    File URL: https://www.dnb.nl/binaries/Working%20Paper%20No%2088-2006_tcm46-146745.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    multinational banks; monitoring; credit supply.;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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