Who is to Blame: Foreign Ownership or Foreign Funding?

Inessa Love, Roberto Rocha (), Erik Feyen (), Samuel Munzele Maimbo () and Raquel Letelier ()
Additional contact information
Roberto Rocha: World Bank's Financial System Department
Erik Feyen: World Bank's Financial Systems Department
Samuel Munzele Maimbo: World Bank's Europe and Central Asia Department
Raquel Letelier: World Bank's Europe and Central Asia Department

No 201423, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: We investigate whether the credit contraction that followed the global financial crisis is due to high foreign ownership or high reliance on foreign finding. We apply panel vector autoregressions to quarterly data for 41 countries and find that domestic credit growth is highly sensitive to cross-border funding shocks around the world. However, high foreign ownership per se does not appear to increase the sensitivity of credit to foreign funding shocks. Rather, the sensitivity is higher in countries with high reliance on foreign funding and high loan-to-deposit ratios. These findings have important policy implications for many countries involved in cross-border funding.

Keywords: Global financial crisis; bank credit; foreign banks; funding models (search for similar items in EconPapers)
JEL-codes: F36 G01 G21 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2014-09
New Economics Papers: this item is included in nep-ban
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