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Who is to Blame: Foreign Ownership or Foreign Funding?

Author

Listed:
  • Inessa Love

    (University of Hawai‘i at Manoa)

  • Roberto Rocha

    (World Bank's Financial System Department)

  • Erik Feyen

    (World Bank's Financial Systems Department)

  • Samuel Munzele Maimbo

    (World Bank's Europe and Central Asia Department)

  • Raquel Letelier

    (World Bank's Europe and Central Asia Department)

Abstract

We investigate whether the credit contraction that followed the global financial crisis is due to high foreign ownership or high reliance on foreign finding. We apply panel vector autoregressions to quarterly data for 41 countries and find that domestic credit growth is highly sensitive to cross-border funding shocks around the world. However, high foreign ownership per se does not appear to increase the sensitivity of credit to foreign funding shocks. Rather, the sensitivity is higher in countries with high reliance on foreign funding and high loan-to-deposit ratios. These findings have important policy implications for many countries involved in cross-border funding.

Suggested Citation

  • Inessa Love & Roberto Rocha & Erik Feyen & Samuel Munzele Maimbo & Raquel Letelier, 2014. "Who is to Blame: Foreign Ownership or Foreign Funding?," Working Papers 201423, University of Hawaii at Manoa, Department of Economics.
    • Handle: RePEc:hai:wpaper:201423
    as

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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_14-23.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Global financial crisis; bank credit; foreign banks; funding models;
    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
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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