Foreign Bank Behavior During Financial Crises

44 Pages Posted: 20 Apr 2016

See all articles by Jonathon Adams-Kane

Jonathon Adams-Kane

Milken Institute

Julián Caballero

Inter-American Development Bank (IDB) - Research Department

Jamus Jerome Lim

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2013

Abstract

One of the persistent policy problems faced by governments contemplating financial liberalizations is the question of whether to allow foreign banks entry into the domestic economy. This question has become ever more urgent in recent times, due to rapid financial globalization, coupled with the credit contractions experienced as a result of the 2007/08 financial crisis. This paper examines the question of whether opening the financial sector to foreign participation is a good idea for developing countries, using a unique bank-level database of foreign ownership. In particular, the authors examine whether the credit supply of majority foreign-owned financial institutions differ systematically conditional on a crisis event in their home economies. They show that foreign banks that were exposed to crises in their home countries exhibit changes in lending patterns that are lower by between 13 and 42 percent than their non-crisis counterparts.

Keywords: Banks & Banking Reform, Debt Markets, Access to Finance, Financial Crisis Management & Restructuring, Bankruptcy and Resolution of Financial Distress

Suggested Citation

Adams-Kane, Jonathon and Caballero, Julian and Lim, Jamus Jerome, Foreign Bank Behavior During Financial Crises (September 1, 2013). World Bank Policy Research Working Paper No. 6590, Available at SSRN: https://ssrn.com/abstract=2320862

Jonathon Adams-Kane

Milken Institute ( email )

1250 Fourth Street
Santa Monica, CA 90401
United States

Julian Caballero

Inter-American Development Bank (IDB) - Research Department ( email )

1300 New York Ave., NW
Washington, DC 20577
United States

Jamus Jerome Lim

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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