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Violent conflict and cross-border lending

Author

Listed:
  • De Haas, Ralph
  • Popov, Alexander
  • Mamonov, Mikhail
  • Shala, Iliriana

Abstract

How do violent conflicts shape cross-border lending? Using data on syndicated loans by 14,021 creditors to firms in 179 countries (1989–2020), we document a dual effect: foreign banks reduce overall lending relative to domestic banks but significantly increase financing to military and dual-use sectors during conflicts. This reallocation is stronger among lenders less specialized in the conflict country, more specialized in military lending, and domiciled in politically non-aligned nations. Effects are geographically contained and temporally limited, dissipating post-conflict. Our findings reveal how global banks strategically redirect credit toward military sectors during armed conflicts, despite reducing overall country exposure. JEL Classification: D74, F34, F40, G15, G21

Suggested Citation

  • De Haas, Ralph & Popov, Alexander & Mamonov, Mikhail & Shala, Iliriana, 2025. "Violent conflict and cross-border lending," Working Paper Series 3073, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20253073
    Note: 861282
    as

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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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