Foreign Currency Loans and Credit Risk: Evidence from U.S. Banks
Friederike Niepmann and
Tim Schmidt-Eisenlohr ()
No 6700, CESifo Working Paper Series from CESifo Group Munich
When firms borrow in foreign currency but collect revenues in local currency, exchange rate changes can affect their ability to repay their debt. Using loan-level data from U.S. banks’ regulatory filings, this paper studies the effect of exchange rate changes on firms’ loan payments. A 10 percent depreciation of the local currency makes a firm with foreign currency debt 69 basis points more likely to become past due on its loans than a firm with local currency debt. This result implies that firms do not perfectly hedge against exchange rate risk and that this risk translates into credit risk for banks. The findings lend support to both the balance sheet channel and the financial channel of exchange rates.
Keywords: cross-border banking; exchange rates; credit risk; corporate loans (search for similar items in EconPapers)
JEL-codes: F31 G15 G21 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6700
Access Statistics for this paper
More papers in CESifo Working Paper Series from CESifo Group Munich Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().