Bank Loan Supply During Crises: The Importance of Geographic Diversification

70 Pages Posted: 11 Dec 2017 Last revised: 7 Mar 2019

See all articles by Sebastian Doerr

Sebastian Doerr

University of Zurich - Department of Economics; University of Zurich - UBS International Center of Economics in Society

Philipp Schaz

Humboldt University of Berlin

Date Written: March 5, 2019

Abstract

We classify a large sample of banks according to the geographic diversification of their international syndicated loan portfolio. Our results show that diversified banks maintain higher loan supply during banking crises in borrower countries. The positive loan supply effects lead to higher investment and employment growth for firms. Diversified banks are stabilizing due to their ability to raise additional funding during times of distress, which also shields connected markets from spillovers. Further distinguishing banks by nationality reveals a pecking order: diversified domestic banks are the most stable source of funding, while foreign banks with little diversification are the most fickle. Our findings suggest that the decline in financial integration since the recent crisis increases countries’ vulnerability to local shocks.

Keywords: Diversification, Global Banking, Financial Stability, Syndicated Loan Market, Banking Crisis

JEL Classification: F30, G01, G15, G21, G32

Suggested Citation

Doerr, Sebastian and Schaz, Philipp, Bank Loan Supply During Crises: The Importance of Geographic Diversification (March 5, 2019). Available at SSRN: https://ssrn.com/abstract=3082945 or http://dx.doi.org/10.2139/ssrn.3082945

Sebastian Doerr

University of Zurich - Department of Economics ( email )

Schönberggasse 1
Office G-05
Zürich, 8001
Switzerland

HOME PAGE: http://www.sdoerr.com

University of Zurich - UBS International Center of Economics in Society

Schönberggasse 1
Zürich, 8001
Switzerland

Philipp Schaz (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

HOME PAGE: http://www.philippschaz.com/

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