Foreign bank lending: Evidence from the global financial crisis |
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| Institution: | 1. Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan;2. Department of Finance, National Taichung University of Science and Technology, Taichung, Taiwan;1. University of Navarra, School of Economics and Business Administration, Edificio Amigos, Campus Universitario, 31009 Pamplona, Spain;2. Universidad Carlos III de Madrid, Department of Business Administration, C/Madrid, 126, 28903 Getafe, Madrid, Spain;1. Stuart School of Business, Illinois Institute of Technology, 565 W. Adams Street, wChicago, IL 60661, United States;2. Schools of Business, Fordham University, 5 Columbus Circle, New York, NY 10019, United States;3. Bank of Finland, P.O. Box 160, Helsinki 01001, Finland;1. EBRD, One Exchange Square, London EC2A 2JN, United Kingdom;2. Tilburg University, Department of Finance, P.O. Box 90153, 5000 LE, Tilburg, The Netherlands |
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| Abstract: | We exploit highly disaggregated bank-firm data to investigate the dynamics of foreign vs domestic credit supply in Italy around the period of the Lehman collapse, which brought a sudden and unexpected deterioration of economic conditions and a sharp increase in credit risk. Taking advantage of the presence of multiple lending relationships to control for credit demand and risk at the individual-firm level, we show that foreign lenders restricted credit supply (to the same firm) more sharply than their domestic counterparts. A number of exercises testing alternative explanations for this result suggest that such more intense restriction also reflects the (functional) distance between a foreign bank's headquarter and the Italian credit market. |
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