The impact of funding models and foreign bank ownership on bank credit growth: is Central and Eastern Europe different ?

Erik Feyen, Raquel Letelier, Inessa Love, Samuel Munzele Maimbo and Roberto Rocha

No 6783, Policy Research Working Paper Series from The World Bank

Abstract: This paper provides new evidence on the factors affecting protracted credit contraction in the wake of the global financial crisis. The paper applies panel vector autoregressions to a global panel that consists of quarterly data for 41 countries for the period 2000-2011 and documents that domestic private credit growth is highly sensitive to cross-border funding shocks around the world. This relationship is significantly stronger in Central and Eastern Europe, a region with considerably stronger foreign presence, higher cross-border funding, and elevated loan-to-deposit ratios compared with the rest of the world. The paper shows that high foreign ownership per se does not appear to explain credit response differences to foreign funding shocks. Rather, there is a stronger response in countries that exhibit high loan-to-deposit ratios and a high reliance on foreign funding relative to local deposits. The results suggest that funding model differences were at the heart of the post-crisis credit contraction in several Central and Eastern European countries. These findings have important regulatory and supervisory implications for emerging countries in Central and Eastern Europe as well as for other countries.

Keywords: Bankruptcy and Resolution of Financial Distress; Access to Finance; Banks&Banking Reform; Economic Theory&Research; Deposit Insurance (search for similar items in EconPapers)
Date: 2014-02-01
New Economics Papers: this item is included in nep-ban, nep-eec and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... ered/PDF/WPS6783.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:6783

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().