Financial Globalization and the Transmission of Bank Liquidity Shocks: Evidence from an Emerging Market

44 Pages Posted: 9 Mar 2011

See all articles by Philipp Schnabl

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: December 2010

Abstract

I exploit the 1998 Russian default as a negative liquidity shock to international banks and analyze its impact on 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 bank-to-bank lending establishes an international transmission channel for liquidity shocks and that foreign bank ownership mitigates, rather than amplifies, the transmission through this channel.

Keywords: 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, Financial Globalization and the Transmission of Bank Liquidity Shocks: Evidence from an Emerging Market (December 2010). Available at SSRN: https://ssrn.com/abstract=1782202 or http://dx.doi.org/10.2139/ssrn.1782202

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)

London
United Kingdom

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