Countercyclical Foreign Currency Borrowing: Eurozone Firms in 2007-2009

Philippe Bacchetta and Ouarda Merrouche ()

No 15-63, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Despite international financial disintegration, we document a dramatic increase in dollar borrowing among leveraged Eurozone corporates during the Great Financial Crisis. Using loan-level data, we trace this increase to the twin crisis in the credit market and in funding markets. The reduction in the supply of credit by Eurozone banks caused riskier borrowers to shift to foreign banks, in particular US banks. The coincident rise in the relative cost of euro wholesale funding and the disruptions in the FX swap market caused a rise in dollar borrowing from US banks, especially for firms in export-oriented sectors. Although global bank lending is often reported to amplify the international credit cycle, we show that foreign banking acted as a shock absorber that weathered the real consequences of the credit crunch in Europe.

Keywords: Money market; swaps; credit crunch; corporate debt; foreign banks (search for similar items in EconPapers)
JEL-codes: E44 G21 G30 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2015-10
New Economics Papers: this item is included in nep-cfn, nep-ifn and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Countercyclical Foreign Currency Borrowing: Eurozone Firms in 2007-2009 (2022)
Working Paper: Countercyclical Foreign Currency Borrowing: Eurozone Firms in 2007-2009 (2015)
Working Paper: Countercyclical Foreign Currency Borrowing:Eurozone Firms in 2007-2009 (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1563

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