Foreign Currency Loans and Credit Risk: Evidence from U.S. Banks

Friederike Niepmann and Tim Schmidt-Eisenlohr

No 14212, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: When firms borrow in foreign currency, exchange rate changes can affect their ability to repay the debt. Loan-level data from U.S. banks' regulatory filings 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 37 basis points for firms with foreign currency debt relative to those with local currency debt. Because firms do not perfectly hedge, exchange rate risk of the borrowers translates into credit risk for banks. Firms are more likely to borrow in foreign currency if they have foreign income 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 more comprehensive perspective than syndicated loan data.

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)
Date: 2019-12
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Foreign currency loans and credit risk: Evidence from U.S. banks (2022)
Working Paper: Foreign Currency Loans and Credit Risk: Evidence from U.S. Banks (2017)
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