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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 ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: foreign banks; government-owned banks; credit growth; crisis; emerging market (search for similar items in EconPapers)
JEL-codes: F36 G21 P34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-tra
Date: 2013-06-30
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Working Paper: The Effects of Foreign and Government Ownership on Bank Lending Behavior during a Crisis in Central and Eastern Europe (2013) Downloads
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