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Foreign banks as shock absorbers in the financial crisis ?

Author

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  • Giorgia Barboni

    (Trinity College Dublin)

Abstract

This paper finds that foreign banks can act as a buffer against negative credit supply shocks, in contexts where the domestic credit market is heavily hit by a country-specific adverse shock. A new dataset is constructed, which combines Belgian Credit Register data with firms and banks’ balance sheets. After 2008, Belgian firms borrowing from domestic banks experienced a stronger credit contraction (minus 1.8 percentage points) than firms borrowing from foreign banks. Also, foreign banks “cherry-picked” new relationships with more profitable firms to a higher extent during the crisis, and turned down existing relationships more frequently than domestic banks. Results from this paper suggest that foreign banks can mitigate negative financial shocks in countries where domestic financial intermediaries unexpectedly experienced the consequences of the financial crisis to a higher extent.

Suggested Citation

  • Giorgia Barboni, 2017. "Foreign banks as shock absorbers in the financial crisis ?," Working Paper Research 322, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:201706-322
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    References listed on IDEAS

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    Cited by:

    1. Christian Beer & Walter Waschiczek, 2018. "Capital markets union: a more diverse financial landscape in the EU?," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q2/18, pages 71-86.
    2. Mario Bambulovic & Miljana Valdec, 2020. "Testing the characteristics of macroprudential policies’ differential impact on foreign and domestic banks’ lending in Croatia," Public Sector Economics, Institute of Public Finance, vol. 44(2), pages 221-249.

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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