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Financial Crisis Transmission: Foreign Ownership vs. Foreign Funding?

Erik Feyen ()
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Erik Feyen: Financial Systems Department, The World Bank, 1818 H st, NW, Washington DC, 20433, U.S.A.

Review of Economics & Finance, 2016, vol. 6, pages 63-80

Abstract: We investigate whether the credit contraction that followed the global financial crisis is due to high foreign bank ownership or high reliance of banks on foreign funding. We apply panel vector auto-regressions to quarterly data for 41 countries, about 11 years, and find that domestic credit growth is highly sensitive to cross-border funding shocks around the world. However, high foreign ownership per se does not appear to increase the sensitivity of credit to foreign funding shocks. Rather, the sensitivity is higher in countries with high reliance on foreign funding and high loan-to-deposit ratios. These findings have important policy implications for many countries involved in cross-border finance.

Keywords: Global financial crisis; Bank credit; Foreign banks; Funding models (search for similar items in EconPapers)
JEL-codes: G01 G21 F36 (search for similar items in EconPapers)
Date: 2016
Note: The authors thank Mar¨ªa Soledad Mart¨ªnez Per¨ªa, Stijn Claessens, participants of the June 2013 World Bank ECA region retreat, participants of the University of Hawaii seminar and participants of the 2014 FIRS conference for useful comments and suggestions. All views are those of the authors and do not represent The World Bank or its member countries.
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