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Foreign Banks and The Bank Lending Channel

Piotr Denderski and Wojtek Paczos

No E2017/3, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We provide new evidence on the bank lending channel of monetary policy using bank-level data of 440 banks from eleven CEE transition economies between 1998 and 2012. Our findings are: i) banks adjust their loans to changes in host country’s monetary policy, ii) foreign-owned banks are less responsive to monetary policy of a host country than domestic-owned banks in both normal and crisis times, iii) foreign parent bank characteristics are irrelevant for the bank lending channel. We propose market segmentation hypothesis that can account for those facts better than the alternative, the internal market hypothesis. Foreign banks have a competitive advantage so that their loan portfolio adjusts less to changes in monetary policy. As a consequence, an increase in foreign penetration of the banking sector does not render monetary policy less effective.

Keywords: banks; bank ownership; bank lending channel; monetary policy (search for similar items in EconPapers)
JEL-codes: E44 E50 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
Date: 2017-03
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Working Paper: Asymmetric financial integration bank ownership and monetary policy in emerging economies (2015) Downloads
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