Taming the Herd? Foreign Banks, the Vienna Initiative and Crisis Transmission
31 Pages Posted: 22 Feb 2014 Last revised: 15 Jul 2014
Date Written: February 20, 2014
We use detailed data on over 350 banks in emerging Europe to analyze how bank ownership and the Vienna Initiative impacted credit growth during the Great Recession. As part of the Vienna Initiative, western European banks signed country-specific commitment letters in which they pledged to maintain exposures and to support their subsidiaries in emerging Europe. We show that while both domestic and foreign banks sharply curtailed credit during the financial crisis, foreign banks that participated in the Vienna Initiative were relatively stable lenders. We find no evidence of negative spillovers from countries where banks signed commitment letters to countries where they did not.
Keywords: Global banking, Vienna Initiative, Financial crisis
JEL Classification: F36, G21, P34
Suggested Citation: Suggested Citation