Foreign bank lending during a crisis: The impact of financial regulations |
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Institution: | 1. Department of Finance, National Taichung University of Science and Technology, Taichung, Taiwan;2. School of Economics and Management, Nanchang University, Nanchang, China;3. Research Center of the Central China for Economic and Social Development Nanchang University, Nanchang, China;1. Yonsei University, 50, Yonsei-ro, Seodaemun-gu, Seoul 03722, Republic of Korea;2. Korea National Open University, 86 Daehak-ro, Jongno-gu, Seoul 03087, Republic of Korea;1. Fengchia University, Taiwan;2. Department of Statistics, Tunghai University, Taiwan;3. National Chiao Tung University, Taiwan;4. Institute of Finance, National Chiao Tung University, Taiwan |
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Abstract: | This study examines foreign bank lending during crises by using data on 1,558 individual banks in Asian and Latin American countries during the period 1987-2013. Our results reveal that, in a crisis period, Asian banks with a higher level of foreign ownership tend to reduce their lending. Nevertheless, during crises banks consistently increase their lending in order to support their borrowers; in fact, in Latin America, crises stimulate foreign banks to lend more. Our evidence on lending during a crisis supports credit rationing theories with a flight to quality. The international substitution effect also holds based on our results. Taking financial structures and regulation into consideration, for banks with more foreign ownership in a highly concentrated financial system in Asia, the crisis has less effect on a cut in lending, while it has a greater effect on cuts in lending for countries with a higher level of government-owned assets. This paper contributes to the existing literature on the bank lending channel and provides implications for policymakers. |
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Keywords: | Foreign bank Lending Regulations Banking crises Asia and Latin America |
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