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Bank loan supply during crises: the importance of geographic diversification

Sebastian Doerr and Philipp Schaz

No 827, BIS Working Papers from Bank for International Settlements

Abstract: We classify a large sample of banks according to the geographic diversification of their international syndicated loan portfolio. Our results show that diversified banks maintain higher loan supply during banking crises in borrower countries. The positive loan supply effects lead to higher investment and employment growth for firms. Diversified banks have a stabilizing effect, thanks to their ability to raise additional funding during times of distress, which also shields connected markets from spillovers. Further distinguishing banks by nationality reveals a pecking order: diversified domestic banks are the most stable source of funding, while foreign banks with little diversification are the most fickle. Our findings suggest that the decline in financial integration since the recent crisis increases countries' vulnerability to local shocks.

Keywords: global banks; diversification; syndicated loans; financial crisis (search for similar items in EconPapers)
JEL-codes: F30 G2 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2019-12
New Economics Papers: this item is included in nep-ban and nep-lab
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