The Lending Channel in Emerging Economies: Are Foreign Banks Different?

By Francisco F. Vazquez, Carmen Reinhart, Marco Arena

March 1, 2007

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Francisco F. Vazquez, Carmen Reinhart, and Marco Arena. The Lending Channel in Emerging Economies: Are Foreign Banks Different?, (USA: International Monetary Fund, 2007) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper exploits a panel dataset comprising 1,565 banks in 20 emerging countries during 1989- 2001 and compares the response of the volume of loans and the rates on loans and deposits to various measures of monetary conditions across domestic and foreign banks. It also looks for systematic differences in the behavior of domestic and foreign banks during periods of financial distress and tranquil times. Using differences in bank ownership as a proxy for financial constraints, the paper finds weak evidence that foreign banks have a lower sensitivity of credit to monetary conditions relative to their domestic competitors, with the differences driven by banks with lower asset liquidity and/or capitalization. The lending and deposit rates of foreign banks tend to be smoother during periods of financial distress. However, the differences across domestic and foreign banks do not appear to be strong. These results provide weak support to the existence of supply-side effects in credit markets and suggest that foreign bank entry in emerging countries may have contributed somewhat to stability in credit markets.

Subject: Banking, Deposit rates, Financial institutions, Financial markets, Financial services, Foreign banks, Loans, Monetary policy, Money markets, Reserve requirements

Keywords: Asia and Pacific, Bank characteristic, Bank ownership, Credit markets, Deposit rates, Foreign bank, Foreign banks, Lending channel, Loan growth, Loans, Monetary transmission, Money market rate, Money markets, Panel dataset, Reserve requirements, WP

Publication Details

Pages:

52
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/048
Stock No:

WPIEA2007048
ISBN:

9781451866124
ISSN:

1018-5941

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