The procyclicality of foreign bank lending: evidence from the global financial crisis

Ugo Albertazzi and Margherita Bottero

No 926, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We exploit highly disaggregated bank-firm data to investigate the dynamics of foreign vs. domestic credit supply in Italy around the period of the Lehman collapse, which brought a sudden and unexpected deterioration of economic conditions and a sharp increase in credit risk. Taking advantage of the presence of multiple lending relationships to control for credit demand and risk at the individual-firm level, we show that foreign lenders restricted credit supply (to the same firm) more sharply than their domestic counterparts. Based on a number of exercises testing alternative explanations for such procyclicality, we find that it mainly reflects the (functional) distance between a foreign bank�s headquarters and the Italian credit market.

Keywords: foreign banks; credit crunch; bank balance sheet channel; functional distance (search for similar items in EconPapers)
JEL-codes: E44 G14 G15 G21 (search for similar items in EconPapers)
Date: 2013-07
New Economics Papers: this item is included in nep-ban, nep-ifn and nep-mac
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_926_13

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