Shock Transmission Through Cross-Border Bank Lending: Credit and Real Effects

68 Pages Posted: 25 Jul 2019 Last revised: 21 Oct 2019

See all articles by Galina Hale

Galina Hale

Federal Reserve Bank of San Francisco

Tumer Kapan

International Monetary Fund (IMF)

Camelia Minoiu

Federal Reserve Board

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-07-17

Abstract

We study the transmission of financial shocks across borders through international bank connections. Using data on cross-border interbank loans among 6,000 banks during 1997-2012, we estimate the effect of asset-side exposures to banks in countries experiencing systemic banking crises on profitability, credit, and the performance of borrower firms. Crisis exposures reduce bank returns and tighten credit conditions for borrowers, constraining investment and growth. The effects are larger for foreign borrowers, including in countries not experiencing banking crises. Our results document the extent of cross-border crisis transmission, but also highlight the resilience of financial networks to idiosyncratic shocks.

Keywords: cross-border interbank exposures, banking crises, shock transmission, bank loans, real economy

JEL Classification: F34, G01, F6, F36, G21

Suggested Citation

Hale, Galina and Kapan, Tumer and Minoiu, Camelia, Shock Transmission Through Cross-Border Bank Lending: Credit and Real Effects (2019-07-17). FEDS Working Paper No. 2019-052. Available at SSRN: https://ssrn.com/abstract=3423252 or http://dx.doi.org/10.17016/FEDS.2019.052

Galina Hale (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3131 (Phone)
415-974-2168 (Fax)

HOME PAGE: http://www.frbsf.org/economic-research/economists/galina-hale/

Tumer Kapan

International Monetary Fund (IMF) ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Camelia Minoiu

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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