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Cross-border bank lending, risk aversion and the financial crisis

Listed author(s):
  • Düwel, Cornelia
  • Frey, Rainer
  • Lipponer, Alexander

This study investigates the determinants of adjustments in the provision of cross-border loans by internationally active banks. For the period from 2002 to 2010, we look at quarterly transaction data (excluding valuation effects) on long-term loans issued by the largest 69 German banking groups to the private sector of 66 countries. We show that the parent bank's lending adjustment is based almost exclusively on supply-side determinants, in particular on bank-specific factors. However, foreign countries' demand and risk characteristics become more relevant when loans are distributed by banks' affiliates located abroad. Focusing on risk measures such as the parent bank's ratio of Tier I capital to risk-weighted assets, we find that rising risk aversion among banks curbed cross-border lending during the financial crisis, especially at a later stage following the collapse of Lehman Brothers. However, we find a threshold at around 11% of the Tier I capital ratio above which an increase in the ratio does not curb lending anymore.

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File URL: https://www.econstor.eu/bitstream/10419/54986/1/684341034.pdf
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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2011,29.

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Date of creation: 2011
Handle: RePEc:zbw:bubdp1:201129
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  1. Nicola Cetorelli & Linda S. Goldberg, 2008. "Banking globalization, monetary transmission, and the lending channel," Staff Reports 333, Federal Reserve Bank of New York.
  2. Kick, Thomas & Koetter, Michael, 2007. "Slippery slopes of stress: Ordered failure events in German banking," Journal of Financial Stability, Elsevier, vol. 3(2), pages 132-148, July.
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  8. De Haas, Ralph & van Lelyveld, Iman, 2009. "Internal Capital Markets and Lending by Multinational Bank Subsidiaries," MPRA Paper 13164, University Library of Munich, Germany.
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  10. Buch, Claudia M. & Koch, Cathérine Tahmee & Koetter, Michael, 2009. "Margins of international banking: is there a productivity pecking order in banking, too?," Discussion Paper Series 2: Banking and Financial Studies 2009,12, Deutsche Bundesbank, Research Centre.
  11. Altunbas, Yener & Gambacorta, Leonardo & Marqués-Ibáñez, David, 2009. "Bank risk and monetary policy," Working Paper Series 1075, European Central Bank.
  12. Olivero, María Pía & Li, Yuan & Jeon, Bang Nam, 2011. "Competition in banking and the lending channel: Evidence from bank-level data in Asia and Latin America," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 560-571, March.
  13. Nicola Cetorelli & Linda S. Goldberg, 2010. "Global banks and international shock transmission: evidence from the crisis," Staff Reports 446, Federal Reserve Bank of New York.
  14. Sevestre, Patrick & Martinez-Pages, Jorge & Gambacorta, Leonardo & Ehrmann, Michael & Worms, Andreas, 2001. "Financial systems and the role of banks in monetary policy transmission in the euro area," Discussion Paper Series 1: Economic Studies 2001,18, Deutsche Bundesbank, Research Centre.
  15. Claudia M. Buch, 1999. "Why Do Banks Go Abroad? ; Evidence from German Data," Kiel Working Papers 948, Kiel Institute for the World Economy.
  16. Houston, Joel F. & James, Christopher, 1998. "Do bank internal capital markets promote lending?," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 899-918, August.
  17. Kick, Thomas & Koetter, Michael & Poghosyan, Tigran, 2010. "Recovery determinants of distressed banks: Regulators, market discipline, or the environment?," Discussion Paper Series 2: Banking and Financial Studies 2010,02, Deutsche Bundesbank, Research Centre.
  18. Serge Jeanneau & Marian Micu, 2002. "Determinants of international bank lending to emerging market countries," BIS Working Papers 112, Bank for International Settlements.
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