Foreign Banks and International Transmission of Monetary Policy: Evidence from the Syndicated Loan Market

54 Pages Posted: 23 Jan 2017

See all articles by Asli Demirgüç-Kunt

Asli Demirgüç-Kunt

World Bank - Development Research Group; World Bank

Bálint L. Horváth

University of Bristol

Harry Huizinga

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2017

Abstract

This paper uses loan-level data from 124 countries over 1995-2015 to examine the transmission of monetary policy through the cross-border syndicated loan market. The results show that the expansion of monetary policy increases cross-border credit supply especially to weaker firms. However, greater foreign bank presence in the borrower country appears to reduce the potentially destabilizing impact of lower policy interest rates on cross-border lending, as it attenuates increases in loan volume and maturity while magnifying increases in collateralization and covenant use. The mitigating effect of foreign banking presence in the borrowing country on the transmission of monetary policy is robust to controlling for borrower-country economic and financial development, and a range of borrower and lender country policies and institutions, including the strength of bank regulation and supervision, exchange rate flexibility, and restrictions on capital flows. The findings qualify the characterization of international banks as sources of credit instability, and suggest that foreign bank entry can improve the stability of cross-border credit in the face of international monetary policy shocks.

Keywords: Bank Regulation, Banking FDI, capital controls, Cross-border lending, Monetary Transmission

JEL Classification: E44, E52, F34, F38, F42, G15, G20

Suggested Citation

Demirgüç-Kunt, Asli and Horváth, Bálint L. and Huizinga, Harry, Foreign Banks and International Transmission of Monetary Policy: Evidence from the Syndicated Loan Market (January 2017). CEPR Discussion Paper No. DP11796, Available at SSRN: https://ssrn.com/abstract=2904318

Asli Demirgüç-Kunt (Contact Author)

World Bank - Development Research Group ( email )

United States
202-473-7479 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/ademirguckunt/

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Bálint L. Horváth

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Harry Huizinga

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2623 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
416
PlumX Metrics