Common Lenders in Emerging Asia: Their Changing Roles in Three Crises

Abstract

The "common lender channel" is a mechanism that facilitates the spread of financial shocks around the globe. Creditor banks withdraw from previously unaffected countries when highly exposed to the epicentre of a crisis. At the time of the Asian financial crisis in 1997, Japanese banks dominated lending to emerging Asia. When Japanese banks cut their credit sharply, less exposed European banks took over as leading lenders. When the Great Financial Crisis of 2007-09 and the European sovereign debt crisis of 2010 struck, it was euro area lenders' turn to pull back from Asia owing to their extensive exposures. By contrast, less exposed Japanese banks expanded their lending. Today, Chinese banks have a sizeable and growing global footprint. In the face of future shocks at home or abroad, they are likely to take their turn as important common lenders.

JEL Classification: F34, F36, G21