Transmission of Bank Liquidity Shocks in Loan and Deposit Markets: The Role of Interbank Borrowing and Market Monitoring
Journal of Financial Stability, Vol. 15, 2014
Wharton Financial Institutions Center Working Paper 10-28
33 Pages Posted: 14 Nov 2010 Last revised: 7 Aug 2015
Date Written: December 1, 2014
Abstract
We examine the international transmission of liquidity and capital shocks from multinational bank-holding companies to their subsidiaries. Our findings are consistent with the studies that document the negative impact of parent bank fragility on subsidiaries’ lending. We further find that foreign bank lending is determined by different factors in developing economies and in developed countries. Moreover, the reduction in lending is stronger for those subsidiaries that are dependent on the interbank market. Finally, we find that market discipline plays a less important role in developing economies during the recent crisis. Instead, liquidity needs determine the change in deposits.
Keywords: Foreign Banks, Credit Supply, Market Discipline
JEL Classification: F15, F34, G21
Suggested Citation: Suggested Citation
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