Foreign Banks, Financial Crises and Macroeconomic Fluctuations

33 Pages Posted: 16 Jun 2016

See all articles by Zeynep Onder

Zeynep Onder

Bilkent University - Faculty of Business Administration

Suheyla Ozyildirim

Bilkent University - Faculty of Business Administration

Date Written: July 2016

Abstract

Understanding the implications of increased foreign bank presence is especially compelling in periods of financial crisis. In this paper, we explore this issue by examining the relationship between the involvement of foreign banks in the banking systems and the volatility of key macroeconomic variables in normal and crisis periods. Using a sample of 20 Emerging European countries from 1998 to 2013, we find that an increase in the assets of foreign banks in the banking system reduces output and consumption growth volatility in general but does not significantly affect the volatility of investments. However, these banks were found to play a significant role in increasing output, consumption and investment volatility in 2009. Our findings suggest that foreign banks’ harmful impact during the global crisis was only temporary and that they seem to help Emerging European countries stabilize macroeconomic volatility in normal times and after the global crisis.

Keywords: Foreign banks, macroeconomic volatility, crisis, Emerging Europe

Suggested Citation

Onder, Zeynep and Ozyildirim, Suheyla, Foreign Banks, Financial Crises and Macroeconomic Fluctuations (July 2016). Economics of Transition, Vol. 24, Issue 3, pp. 447-479, 2016, Available at SSRN: https://ssrn.com/abstract=2796360 or http://dx.doi.org/10.1111/ecot.12096

Zeynep Onder (Contact Author)

Bilkent University - Faculty of Business Administration ( email )

06533 Bilkent, Ankara
Turkey
(90)(312) 290 2038 (Phone)
(90)(312) 266 4958 (Fax)

Suheyla Ozyildirim

Bilkent University - Faculty of Business Administration ( email )

06800 Bilkent, Ankara
Turkey

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