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The Effects of Foreign and Government Ownership on Bank Lending Behavior during a Crisis in Central and Eastern Europe

Franklin Allen, Krzysztof Jackowicz and Oskar Kowalewski ()
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Franklin Allen: U PA
Krzysztof Jackowicz: Kozminski University

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: We examine whether foreign-owned and government-owned banks in Central and Eastern Europe reacted differently during a domestic systematic banking crisis and the global financial crisis of 2008. Our panel dataset comprises data on more than 400 banks for the period 1994- 2010. Our analysis shows that foreign banks provided credit during domestic banking crises in host countries, while government-owned banks contracted. In contrast, foreign-owned banks reduced their credit base during the global financial crisis, while government-owned banks expanded. Consequently, our results show that foreign-owned banks may contribute to financial stability during domestic crisis episodes, but also increase the risk of importing instability from abroad during a crisis in their home markets. However, government-owned banks may substitute for foreign-owned banks and hinder the transmission of international shocks. Thus, our results indicate that a mixed banking sector consisting of foreign-owned and government-owned banks is most advisable.

JEL-codes: C23 F36 G21 P34 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:13-25

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