Dissecting Foreign Bank Lending Behavior During the 2008–2009 Crisis

Abstract

This paper analyzes the lending behavior of foreign‐owned banks during the recent global crisis. Using bank‐level panel data for 51 countries, the paper explores the role of affiliate and parent financial characteristics, host location, as well as the impact of parent geographic origin and reach on foreign banks’ credit growth. Overall, the analysis finds robust evidence that foreign banks curtailed the growth of credit relative to other banks, independent of the host region in which they operate. Banks from the United States reduced loan growth less than other parent banks. Neither the global nor regional reach of parent banks influenced the lending growth of foreign affiliates. Parent capitalization and not parent funding explained the behavior of foreign bank credit growth during the global crisis. However, funding did affect the lending behavior of domestic and foreign banks in host countries, with those relying more heavily on deposits suffering a smaller decline in bank lending. Although not the focus of the paper, we also find that government‐owned banks played a countercyclical role in all regions.

Historical Islamic Fiscal Solutions in Times of Crises and Its Contemporary Equivalences

“…Michail et al (2021) show that a lower policy rate does not always alter the lending behavior of commercial banks in the long term, as deposit levels and credit risks take priority (Michail et al, 2021). Other papers focus on the relationship between ownership of the banks and lending behavior in emerging markets during crises, government-owned banks increase their lending and risk-taking behavior in crises times in order to stimulate the economy in a countercyclical movement (Bosshardt & Cerutti, 2020;Choi et al, 2016), in the same time foreign-owned banks tend to decrease their lending behavior in a procyclical way during crises (Allen et al, 2013;Choi et al, 2016). Hsieh & Lee (2020) indicates that there might be an inverse relationship between the two: the higher the government stimulus and intervention, the lower the lending of a foreign bank to clients during the crises and vice versa (Hsieh & Lee, 2020).…”