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Shock Contagion, Asset Quality and Lending Behavior

Tho Pham, Oleksandr Talavera and Andriy Tsapin

No 01/2018, Working Papers from National Bank of Ukraine

Abstract: We use the geopolitical conflict in eastern Ukraine as a negative shock to bank assets and examine the shock's impact on the banking sector. We find banks were more severely affected by the conflict if they had more loans outstanding in the conflict areas before the shock. These banks, consequently, are more likely to experience an increase in troubled assets and a reduction in credit supply. Further analysis offers evidence of the "flight to headquarters" effect in credit allocation wherein more affected banks cut lending by a greater amount in markets located farther from headquarters.

Keywords: geopolitical shock; credit allocation; asset quality; flight to headquarters; difference-in-differences (search for similar items in EconPapers)
JEL-codes: G01 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-cis and nep-tra
Date: 2018-01
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