Bank Loan Supply During Crises: The Importance of Geographic Diversification

71 Pages Posted: 13 Dec 2019

See all articles by Sebastian Doerr

Sebastian Doerr

Bank for International Settlements

Philipp Schaz

Humboldt University of Berlin

Multiple version iconThere are 2 versions of this paper

Date Written: December 11, 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 have a stabilizing effect, thanks 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: global banks, diversification, syndicated loans, financial crisis

JEL Classification: F30, G2

Suggested Citation

Doerr, Sebastian and Schaz, Philipp, Bank Loan Supply During Crises: The Importance of Geographic Diversification (December 11, 2019). BIS Working Paper No. 827. Available at SSRN: https://ssrn.com/abstract=3502474

Sebastian Doerr (Contact Author)

Bank for International Settlements ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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

Philipp Schaz

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

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

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