 Foreign currency loans and credit risk: Evidence from U.S. banksFriederike Niepmann and Tim Schmidt-Eisenlohr Journal of International Economics, 2022, vol. 135, issue C Abstract: When firms borrow in foreign currency and are not perfectly hedged, exchange rate changes can affect their ability to repay the debt. U.S. loan-level data show that a 10 percent depreciation of the local currency quarter-to-quarter increases the probability that a firm becomes past due on its loans by 42 basis points for firms with foreign currency debt relative to those with local currency debt. This increase is economically significant, given a baseline probability of 20 basis points, and indicates that exchange rate risk of borrowers can translate into credit risk for banks. Firms are more likely to borrow in foreign currency if they belong to industries that generate more income abroad and if a UIP deviation makes foreign currency loans cheaper. The paper establishes additional facts on large U.S. banks’ international corporate loan portfolios, offering a perspective complementary to that provided by syndicated loan data. Keywords: Cross-border banking; Exchange rates; Credit risk; Corporate loans (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:135:y:2022:i:c:s0022199621001380 DOI: 10.1016/j.jinteco.2021.103558 Access Statistics for this article Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and RodrÃguez-Clare, Andrés More articles in Journal of International Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.