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The International Transmission of Bank Liquidity Shocks: Evidence from an Emerging Market

46 Pages Posted: 9 Mar 2009 Last revised: 5 Sep 2011

Philipp Schnabl

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 2011

Abstract

I exploit the 1998 Russian default as a negative liquidity shock to international banks and analyze its transmission to Peru. I find that after the shock international banks reduce bank-to-bank lending to Peruvian banks and Peruvian banks reduce lending to Peruvian firms. The effect is strongest for domestically owned banks that borrow internationally, intermediate for foreign-owned banks, and weakest for locally funded banks. I control for credit demand by examining firms that borrow from several banks. These results suggest that international banks transmit liquidity shocks across countries and that negative liquidity shocks reduce bank lending in affected countries.

Keywords: Bank Liquidity Shocks, Credit Supply Shocks, Foreign-owned Banks, Bank Lending Channel, Emerging Markets, Financial Contagion

JEL Classification: G21, F34, O19

Suggested Citation

Schnabl, Philipp, The International Transmission of Bank Liquidity Shocks: Evidence from an Emerging Market (February 15, 2011). Journal of Finance, Forthcoming; NYU Working Paper No. FIN-08-008. Available at SSRN: https://ssrn.com/abstract=1354496

Philipp Schnabl (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

HOME PAGE: http://pages.stern.nyu.edu/~sternfin/pschnabl/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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