Do Foreign-Owned Banks Affect Banking System Liquidity Risk?

27 Pages Posted: 27 Apr 2009

Date Written: April 2009

Abstract

Existing empirical research shows that foreign owned banks play a stabilizing role in emerging economies' banking systems. Anecdotal evidence suggests that this stabilizing role can be attributed to transnational banks' access to more diversified sources of liquidity. There exists, however, no empirical evidence so far on transnational banks' liquidity behavior and its effect on aggregate banking system liquidity. This paper aims at closing this gap. First, we look at the liquid assets holdings of transnational banks and show that in "normal" times they are significantly lower but in crises times higher than those of single-market banks. Second, we find evidence that transnational banks' presence significantly reduces the risk of aggregate liquidity shortages in emerging economies.

Keywords: foreign bank ownership, financial market integration, liquid assets, bank liquidity crises

JEL Classification: G21, E49

Suggested Citation

Dinger, Valeriya, Do Foreign-Owned Banks Affect Banking System Liquidity Risk? (April 2009). Paolo Baffi Centre Research Paper No. 2009-42, Available at SSRN: https://ssrn.com/abstract=1395582 or http://dx.doi.org/10.2139/ssrn.1395582

Valeriya Dinger (Contact Author)

Universität Osnabrück ( email )

Neuer Graben
Osnabrück, 49074
Germany

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