Foreign Banks and Credit Conditions in EMEs

23 Pages Posted: 29 Apr 2017

See all articles by Torsten Ehlers

Torsten Ehlers

Bank for International Settlements (BIS)

Patrick McGuire

Bank for International Settlements (BIS)

Date Written: March 2017

Abstract

A large literature assesses the benefits that foreign banks bring to emerging market economies (EMEs), drawing evidence from datasets that track the ownership of banks located in a particular country. Similarly, previous work has demonstrated that cross-border credit – both direct cross-border credit and indirect cross-border credit that is routed via resident banks – fuelled the boom-bust credit cycle in EMEs around the 2007‒09 financial crisis. This paper explores this credit cycle from a different perspective, using a dataset that simultaneously delineates between bank ownership and the location of the borrowers. This helps to isolate the share of total bank credit – which includes domestic credit and cross-border credit to non-banks – that is provided by foreign banks, a measure that is not possible to construct using the standard ownership datasets. The results suggest that cross-border credit did exacerbate the credit cycle, but that foreign banks did not necessarily have a destabilising effect since their local operations (ie local lending funded in the local currency) were a source of stability. In short, what matters is the type of bank claim rather than bank ownership.

Full Publication: Financial Systems and the Real Economy

Keywords: International banking, foreign banks, Global Financial Crisis, BIS international banking statistics

JEL Classification: F34, G01, G21

Suggested Citation

Ehlers, Torsten and McGuire, Patrick M., Foreign Banks and Credit Conditions in EMEs (March 2017). BIS Paper No. 91d. Available at SSRN: https://ssrn.com/abstract=2945068

Torsten Ehlers (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Patrick M. McGuire

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

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