US vs. Euro Area: Who Drives Cross-Border Bank Lending to EMs?

By Eugenio M Cerutti, Carolina Osorio Buitron

September 20, 2019

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Eugenio M Cerutti, and Carolina Osorio Buitron. US vs. Euro Area: Who Drives Cross-Border Bank Lending to EMs?, (USA: International Monetary Fund, 2019) accessed December 25, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper analyzes the drivers of cross-border bank lending to 49 Emerging Markets (EMs) during the period 1990Q1-2014Q4, by assessing the impact of monetary, financial and real sector shocks in both the US and the euro area. The literature has traditionally highlighted the influence of US monetary policy on driving cross-border bank flows, and more recently the importance of both US and Euro Area (EA) financial/banking sectors’ related variables. Our contribution is the simultaneous analysis of the role of these US and EA drivers, as well as their interactions with real sector shocks. We corroborate the negative impact of US monetary policy tightening on cross-border lending to EMs, but we find that EA monetary policy seems to have an impact mostly on Emerging Europe, reflecting the fact that cross-border lending to most other EM regions is dollar denominated. We also find that real sector shocks in both the US and EA trigger an increase in cross-border lending, but less in EA when modeling the financial sector. Finally, for financial sector shocks, such as those associated with a decrease in bank leverage, our results indicate a broad-based overall contraction of cross-border lending if the shock originates in the US, and heterogenous effects across borrowing regions if the shock originates in the EA.

Subject: Bank credit, Banking, Central bank policy rate, Cross-border banking, Economic sectors, Financial sector, Financial services, Money, Yield curve

Keywords: Asia and Pacific, Bank credit, Bank leverage, Bond yield, Central bank policy rate, Cross-border bank lending, Cross-border banking, Cross-border lending, EA bank, EA monetary policy, EA shock, Emerging markets, Europe, Financial sector, Global, Global banks, Monetary policy, Risk attitude, WP, Yield curve

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/199
Stock No:

WPIEA2019199
ISBN:

9781513511900
ISSN:

1018-5941

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