On the Roles of Different Foreign Currencies in European Bank Lending

35 Pages Posted: 29 Sep 2015

See all articles by Signe Krogstrup

Signe Krogstrup

National Bank of Denmark - Economics Department; Danmarks Nationalbank (The Central Bank of Denmark); IMF

Cédric Tille

Graduate Institute of International and Development Studies (HEI)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2015

Abstract

We draw on a new data set on the use of Swiss francs and other currencies by European banks to assess the patterns of foreign currency bank lending. We show that the patterns differ sharply across foreign currencies. The Swiss franc is used predominantly for lending to residents, especially households. It is sensitive to the interest rate differential, exchange rate developments, funding availability, and to some extent international trade. Lending in other currencies is more used in lending to resident nonfinancial firms, and mostly in cross-border lending, where it is sensitive to funding costs and trade. Policy measures aimed at foreign currency lending have a clear impact on lending to residents. Our analysis shows that not all foreign currencies are alike, and that any policy aimed at the use of foreign currencies needs to take this heterogeneity into account.

Keywords: cross-border transmission of shocks, foreign currency lending, Swiss franc lending

JEL Classification: F32, F34, F36

Suggested Citation

Krogstrup, Signe and Tille, Cedric, On the Roles of Different Foreign Currencies in European Bank Lending (September 2015). CEPR Discussion Paper No. DP10845. Available at SSRN: https://ssrn.com/abstract=2666948

Signe Krogstrup (Contact Author)

National Bank of Denmark - Economics Department ( email )

1093 Copenhagen
Denmark

Danmarks Nationalbank (The Central Bank of Denmark) ( email )

Havnegade 5
Copenhagen, 1093
Denmark

IMF ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Cedric Tille

Graduate Institute of International and Development Studies (HEI) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

HOME PAGE: http://sites.google.com/site/cedrictilleheid/home

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