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Foreign banks and international transmission of monetary policy : evidence from the syndicated loan market

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Listed:
  • Demirguc-Kunt,Asli
  • Horvath,Balint Laszlo
  • Huizinga,Harry P.

Abstract

This paper uses loan-level data from 124 countries over 1995?2015 to examine the transmission of monetary policy through the cross-border syndicated loan market. The results show that the expansion of monetary policy increases cross-border credit supply especially to weaker firms. However, greater foreign bank presence in the borrower country appears to reduce the potentially destabilizing impact of lower policy interest rates on cross-border lending, as it attenuates increases in loan volume and maturity while magnifying increases in collateralization and covenant use. The mitigating effect of foreign banking presence in the borrowing country on the transmission of monetary policy is robust to controlling for borrower-country economic and financial development, and a range of borrower and lender country policies and institutions, including the strength of bank regulation and supervision, exchange rate flexibility, and restrictions on capital flows. The findings qualify the characterization of international banks as sources of credit instability, and suggest that foreign bank entry can improve the stability of cross-border credit in the face of international monetary policy shocks.

Suggested Citation

  • Demirguc-Kunt,Asli & Horvath,Balint Laszlo & Huizinga,Harry P., 2017. "Foreign banks and international transmission of monetary policy : evidence from the syndicated loan market," Policy Research Working Paper Series 7937, The World Bank.
    • Handle: RePEc:wbk:wbrwps:7937
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    Cited by:

    1. Friederike Niepmann & Tim Schmidt‐Eisenlohr & Emily Liu, 2021. "The effect of US stress tests on monetary policy spillovers to emerging markets," Review of International Economics, Wiley Blackwell, vol. 29(1), pages 165-194, February.
    2. Mark M. Spiegel, 2021. "Monetary Policy Spillovers Under Covid-19: Evidence from U.S. Foreign Bank Subsidiaries," Working Paper Series 2021-14, Federal Reserve Bank of San Francisco.
    3. Kouretas, Georgios P. & Pawłowska, Małgorzata & Szafrański, Grzegorz, 2020. "Market structure and credit procyclicality: Lessons from loan markets in the European Union banking sectors," Economic Modelling, Elsevier, vol. 93(C), pages 27-50.
    4. Akgündüz, Yusuf Emre & Cılasun, Seyit Mümin & Dursun-de Neef, H. Özlem & Hacıhasanoğlu, Yavuz Selim & Yarba, Ibrahim, 2025. "Foreign bank lending during COVID-19," Journal of Banking & Finance, Elsevier, vol. 178(C).
    5. Schmidt, Julia & Caccavaio, Marianna & Carpinelli, Luisa & Marinelli, Giuseppe, 2018. "International spillovers of monetary policy: Evidence from France and Italy," Journal of International Money and Finance, Elsevier, vol. 89(C), pages 50-66.
    6. Burietz, Aurore & Picault, Matthieu, 2023. "To lend or not to lend? The ECB as the ‘intermediary of last resort’," Economic Modelling, Elsevier, vol. 122(C).
    7. Apergis, Nicholas & Aysan, Ahmet F. & Bakkar, Yassine, 2022. "Borrower- and lender-based macroprudential policies: What works best against bank systemic risk?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    8. Morales, Paola & Osorio, Daniel & Lemus, Juan S. & Sarmiento Paipilla, Miguel, 2021. "The Internationalization of Domestic Banks and the Credit Channel of Monetary Policy," Discussion Paper 2021-028, Tilburg University, Center for Economic Research.
    9. Morales, Paola & Osorio, Daniel & Lemus, Juan S. & Sarmiento Paipilla, Miguel, 2021. "The Internationalization of Domestic Banks and the Credit Channel of Monetary Policy," Other publications TiSEM a8a61825-7d96-4635-8e61-8, Tilburg University, School of Economics and Management.
    10. Zhang, Zhaowen & Jiang, Yaohui, 2022. "Can green public procurement change energy efficiency? Evidence from a quasi-natural experiment in China," Energy Economics, Elsevier, vol. 113(C).
    11. Joseph, Kerron & Nguyen, Ca & Wald, John K., 2025. "Renegotiation of international loans, capital regulation, and monetary policy," Journal of Banking & Finance, Elsevier, vol. 176(C).
    12. Sarmiento, Miguel, 2024. "Sudden yield reversals and financial intermediation in emerging markets," Journal of Financial Stability, Elsevier, vol. 74(C).
    13. Paola Morales & Daniel Osorio-Rodríguez & Juan S. Lemus-Esquivel & Miguel Sarmiento, 2021. "The internationalization of domestic banks and the credit channel of monetary policy," Borradores de Economia 1181, Banco de la Republica de Colombia.
    14. Morales, Paola & Osorio, Daniel & Lemus, Juan S. & Sarmiento, Miguel, 2022. "The internationalization of domestic banks and the credit channel of monetary policy," Journal of Banking & Finance, Elsevier, vol. 135(C).
    15. Morales, Paola & Osorio, Daniel & Lemus, Juan S. & Sarmiento Paipilla, Miguel, 2021. "The Internationalization of Domestic Banks and the Credit Channel of Monetary Policy," Other publications TiSEM 51d7c0c0-bcf4-4031-9e45-e, Tilburg University, School of Economics and Management.
    16. Miguel Sarmiento, 2022. "Sudden Yield Reversals and Financial Intermediation in Emerging Markets," Borradores de Economia 1210, Banco de la Republica de Colombia.
    17. Hongxin Yu & Yaohui Jiang & Zhaowen Zhang & Wen-Long Shang & Chunjia Han & Yuanjun Zhao, 2022. "The impact of carbon emission trading policy on firms’ green innovation in China," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-24, December.
    18. Bräuning, Falk & Ivashina, Victoria, 2020. "U.S. monetary policy and emerging market credit cycles," Journal of Monetary Economics, Elsevier, vol. 112(C), pages 57-76.

    More about this item

    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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