[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/bap/journl/160405.html
   My bibliography  Save this article

Financial Crisis Transmission: Foreign Ownership vs. Foreign Funding?

Author

Listed:
  • Erik Feyen

    (Financial Systems Department, The World Bank, 1818 H st, NW, Washington DC, 20433, U.S.A.)

Abstract
We investigate whether the credit contraction that followed the global financial crisis is due to high foreign bank ownership or high reliance of banks on foreign funding. We apply panel vector auto-regressions to quarterly data for 41 countries, about 11 years, 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 finance.

Suggested Citation

  • Erik Feyen, 2016. "Financial Crisis Transmission: Foreign Ownership vs. Foreign Funding?," Review of Economics & Finance, Better Advances Press, Canada, vol. 6, pages 63-80, November.
    • Handle: RePEc:bap:journl:160405
    Note: The authors thank Mar¨ªa Soledad Mart¨ªnez Per¨ªa, Stijn Claessens, participants of the June 2013 World Bank ECA region retreat, participants of the University of Hawaii seminar and participants of the 2014 FIRS conference for useful comments and suggestions. All views are those of the authors and do not represent The World Bank or its member countries.
    as

    Download full text from publisher

    File URL: http://www.bapress.ca/ref/ref-article/1923-7529-2016-04-63-18.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Giannetti, Mariassunta & Ongena, Steven, 2012. "“Lending by example”: Direct and indirect effects of foreign banks in emerging markets," Journal of International Economics, Elsevier, vol. 86(1), pages 167-180.
    2. Grossmann, Axel & Love, Inessa & Orlov, Alexei G., 2014. "The dynamics of exchange rate volatility: A panel VAR approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 1-27.
    3. Nicola Cetorelli & Linda S. Goldberg, 2012. "Follow the Money: Quantifying Domestic Effects of Foreign Bank Shocks in the Great Recession," American Economic Review, American Economic Association, vol. 102(3), pages 213-218, May.
    4. Cull, Robert & Martínez Pería, María Soledad, 2013. "Bank ownership and lending patterns during the 2008–2009 financial crisis: Evidence from Latin America and Eastern Europe," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4861-4878.
    5. Ralph De Haas & Yevgeniya Korniyenko & Elena Loukoianova & Alexander Pivovarsky, 2012. "Foreign Banks and the Vienna Initiative: Turning Sinners into Saints?," Mo.Fi.R. Working Papers 62, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    6. Ralph De Haas & Neeltje Van Horen, 2013. "Running for the Exit? International Bank Lending During a Financial Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 26(1), pages 244-285.
    7. Kapan, Tümer & Minoiu, Camelia, 2013. "Balance sheet strength and bank lending during the global financial crisis," Discussion Papers 33/2013, Deutsche Bundesbank.
    8. Frederic S. Mishkin, 2007. "Is Financial Globalization Beneficial?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 259-294, March.
    9. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
    10. Love, Inessa & Turk Ariss, Rima, 2014. "Macro-financial linkages in Egypt: A panel analysis of economic shocks and loan portfolio quality," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 158-181.
    11. Michael R. M. Abrigo & Inessa Love, 2016. "Estimation of panel vector autoregression in Stata," Stata Journal, StataCorp LP, vol. 16(3), pages 778-804, September.
    12. Ralph De Haas & Iman Van Lelyveld, 2014. "Multinational Banks and the Global Financial Crisis: Weathering the Perfect Storm?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(s1), pages 333-364, February.
    13. Choi, Moon Jung & Gutierrez, Eva & Peria, Maria Soledad Martinez, 2013. "Dissecting foreign bank lending behavior during the 2008-2009 crisis," Policy Research Working Paper Series 6674, The World Bank.
    14. Nicola Cetorelli & Linda S Goldberg, 2011. "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(1), pages 41-76, April.
    15. Stijn Claessens & Neeltje Van Horen, 2014. "Foreign Banks: Trends and Impact," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(s1), pages 295-326, February.
    16. Ralph De Haas & Yevgeniya Korniyenko & Elena Loukoianova & Alexander Pivovarsky, 2012. "Foreign banks and the Vienna Initiative: turning sinners into saints," Working Papers 143, European Bank for Reconstruction and Development, Office of the Chief Economist.
    17. Ongena, Steven & Peydró, José-Luis & Horen, Neeltje van, 2015. "Shocks Abroad, Pain at Home? Bank-Firm Level Evidence on the International Transmission of Financial Shocks," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 698-750.
    18. Eugenio Cerutti & Stijn Claessens, 2017. "The Great Cross-Border Bank Deleveraging: Supply Constraints and Intra-Group Frictions," Review of Finance, European Finance Association, vol. 21(1), pages 201-236.
    19. Michael R.M. Abrigo & Inessa Love, 2016. "Estimation of Panel Vector Autoregression in Stata: a Package of Programs," Working Papers 201602, University of Hawaii at Manoa, Department of Economics.
    20. Claessens, Stijn & Van Horen, Neeltje, 2013. "Impact of Foreign Banks," Journal of Financial Perspectives, EY Global FS Institute, vol. 1(1), pages 29-42.
    21. Claessens, Stijn & Van Horen, Neeltje, 2013. "Impact of Foreign Banks," Journal of Financial Perspectives, EY Global FS Institute, vol. 1(1), pages 29-42.
    22. Gregorio Impavido & Mr. Heinz Rudolph & Mr. Luigi Ruggerone, 2013. "Bank Funding in Central, Eastern and South Eastern Europe Post Lehman: A “New Normal”?," IMF Working Papers 2013/148, International Monetary Fund.
    23. Popov, Alexander & Udell, Gregory F., 2012. "Cross-border banking, credit access, and the financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 147-161.
    24. Philipp Schnabl, 2012. "The International Transmission of Bank Liquidity Shocks: Evidence from an Emerging Market," Journal of Finance, American Finance Association, vol. 67(3), pages 897-932, June.
    25. Feyen, Erik & del Mazo, Ines Gonzalez, 2013. "European bank deleveraging and global credit conditions : implications of a multi-year process on long-term finance and beyond," Policy Research Working Paper Series 6388, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vyshnevskyi, Iegor & Sohn, Wook, 2023. "Nonperforming loans and related lending: Evidence from Ukraine," Emerging Markets Review, Elsevier, vol. 57(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Stijn Claessens, 2017. "Global Banking: Recent Developments and Insights from Research," Review of Finance, European Finance Association, vol. 21(4), pages 1513-1555.
    3. Feyen, Erik & Letelier, Raquel & Love, Inessa & Maimbo, Samuel Munzele & Rocha, Roberto, 2014. "The impact of funding models and foreign bank ownership on bank credit growth : is Central and Eastern Europe different ?," Policy Research Working Paper Series 6783, The World Bank.
    4. Ongena, Steven & Peydró, José-Luis & Horen, Neeltje van, 2015. "Shocks Abroad, Pain at Home? Bank-Firm Level Evidence on the International Transmission of Financial Shocks," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 63(4), pages 698-750.
    5. Adalbert Winkler, 2014. "Finance, growth and crisis — A European perspective," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 49(2), pages 88-94, March.
    6. G Andrew Karolyi & John Sedunov & Alvaro G. Taboada, 2023. "Cross-Border Bank Flows and Systemic Risk," Review of Finance, European Finance Association, vol. 27(5), pages 1563-1614.
    7. Steven Ongena & Günseli Tümer–Alkan & Natalja von Westernhagen, 2018. "Do Exposures to Sagging Real Estate, Subprime, or Conduits Abroad Lead to Contraction and Flight to Quality in Bank Lending at Home?," Review of Finance, European Finance Association, vol. 22(4), pages 1335-1373.
    8. Ralph De Haas, 2014. "The dark and bright sides of global banking: a (somewhat) cautionary tale from emerging Europe," Working Papers 170, European Bank for Reconstruction and Development, Office of the Chief Economist.
    9. Allen N. Berger & Tanakorn Makaew & Ms. Rima A Turk, 2018. "Who Pays for Financial Crises? Price and Quantity Rationing of Different Borrowers by Domestic and Foreign Banks," IMF Working Papers 2018/158, International Monetary Fund.
    10. Maria Arakelyan, 2018. "Foreign Banks and Credit Dynamics in CESEE," IMF Working Papers 2018/003, International Monetary Fund.
    11. Jonathon Adams‐Kane & Julián A. Caballero & Jamus Jerome Lim, 2017. "Foreign Bank Behavior during Financial Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(2-3), pages 351-392, March.
    12. De Haas, Ralph & Korniyenko, Yevgeniya & Pivovarsky, Alexander & Tsankova, Teodora, 2015. "Taming the herd? Foreign banks, the Vienna Initiative and crisis transmission," Journal of Financial Intermediation, Elsevier, vol. 24(3), pages 325-355.
    13. Claessens, Stijn & Van Horen, Neeltje, 2013. "Impact of Foreign Banks," Journal of Financial Perspectives, EY Global FS Institute, vol. 1(1), pages 29-42.
    14. Anginer, Deniz & Cerutti, Eugenio & Martínez Pería, María Soledad, 2017. "Foreign bank subsidiaries' default risk during the global crisis: What factors help insulate affiliates from their parents?," Journal of Financial Intermediation, Elsevier, vol. 29(C), pages 19-31.
    15. Carlo Alcaraz & Stijn Claessens & Gabriel Cuadra & David Marques-Ibanez & Horacio Sapriza, 2018. "Whatever it takes. What's the impact of a major nonconventional monetary policy intervention?," BIS Working Papers 749, Bank for International Settlements.
    16. Choi, Moon Jung & Gutierrez, Eva & Peria, Maria Soledad Martinez, 2013. "Dissecting foreign bank lending behavior during the 2008-2009 crisis," Policy Research Working Paper Series 6674, The World Bank.
    17. Pham, Tho & Talavera, Oleksandr & Tsapin, Andriy, 2018. "Shock contagion, asset quality and lending behavior," BOFIT Discussion Papers 21/2018, Bank of Finland Institute for Emerging Economies (BOFIT).
    18. Claessens, Stijn & van Horen, Neeltje, 2021. "Foreign banks and trade," Journal of Financial Intermediation, Elsevier, vol. 45(C).
    19. Eugenio Cerutti & Stijn Claessens, 2017. "The Great Cross-Border Bank Deleveraging: Supply Constraints and Intra-Group Frictions," Review of Finance, European Finance Association, vol. 21(1), pages 201-236.
    20. Olivier De Jonghe & Hans Dewachter & Klaas Mulier & Steven Ongena & Glenn Schepens, 2020. "Some Borrowers Are More Equal than Others: Bank Funding Shocks and Credit Reallocation [A theory of systemic risk and design of prudential bank regulation]," Review of Finance, European Finance Association, vol. 24(1), pages 1-43.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bap:journl:160405. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Carlson (email available below). General contact details of provider: http://www.bapress.ca .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.