Foreign Banks and the Bank Lending Channel

Abstract

We provide new evidence on bank ownership and transmission of monetary policy using bank-level data on 453 banks in Central and Eastern European economies between 1998 and 2012. Only domestic banks adjust loans to changes in monetary policy, while foreign banks do not. Conventional wisdom says that this is because foreign banks can rely on parent banks' funding to insulate against monetary policy shocks. In this paper we document an alternative explanation. Deposits in foreign banks do not react to monetary policy, hence the bank lending channel is only triggered in domestic banks. (JEL E50, F36, G21) * We would like to thank Steven Ongena, our Editor, and an anonymous referee for their detailed comments that improved the paper. The paper has benefited from discussions and support from Árpád Ábrahám, Eric Bartelsman

Does capital-based regulation affect bank pricing policy?

“… 19 The analysis of the implications for the monetary policy conduct received some attention. Most recently, Denderski and Paczos ( 2021 ) showed that the ownership structure of banks in CEE region negatively affects the sensitivity of supply of credit to changes in monetary policy. …”