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Bank loan supply during crises: the importance of geographic diversification

Sebastian Doerr and Philipp Schaz

No 288, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We classify a large sample of banks according to the geographic diversification of their international syndicated loan portfolio. Our results show that diversified banks maintain higher loan supply during banking crises in borrower countries. The positive loan supply effects lead to higher investment and employment growth for firms. Diversified banks are stabilizing due to their ability to raise additional funding during times of distress, which also shields connected markets from spillovers. Further distinguishing banks by nationality reveals a pecking order: diversified domestic banks are the most stable source of funding, while foreign banks with little diversification are the most fickle. Our findings suggest that the decline in financial integration since the recent crisis increases countries’ vulnerability to local shocks.

Keywords: Diversification; Global Banking; Financial Stability; Syndicated Loan Market; Banking Crisis (search for similar items in EconPapers)
JEL-codes: F30 G01 G15 G21 G32 (search for similar items in EconPapers)
Date: 2018-05, Revised 2019-03
New Economics Papers: this item is included in nep-ban
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Working Paper: Bank loan supply during crises: the importance of geographic diversification (2019) Downloads
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