Geographic diversification and bank lending during crises
50 Pages Posted: 11 Dec 2017 Last revised: 16 Jun 2020
Date Written: March 5, 2019
We classify a large sample of banks according to the geographic diversification of their international syndicated loan portfolio. We show that diversified banks maintain higher loan supply during banking crises in borrower countries. Positive loan supply effects lead to higher firm investment and employment growth. Diversified banks are stabilizing due to their ability to raise additional funding during times of distress. Distinguishing banks by nationality reveals that diversified domestic banks are a stable source of funding, while foreign banks with little diversification are fickle. Findings suggest that declining financial integration makes countries more vulnerable to local financial shocks.
Keywords: Global Banks, Diversification, Syndicated Loans, Financial Crisis
JEL Classification: F30, G2
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