Journal article
Foreign bank penetration and the lending channel in emerging economies: Evidence from bank-level panel data
Journal of international money and finance, v 30(6), pp 1128-1156
2011
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
This paper examines the main implications of recently increasing foreign bank penetration on bank lending as a channel of monetary policy transmission in emerging economies. Using a dynamic panel model of loan growth, we investigate the loan granting behavior of 1273 banks in the emerging economies of Asia, Latin America, and Central and Eastern Europe during the period from 1996 to 2003. Applying the pooled OLS, system GMM, and panel VAR estimators, we find consistent evidence that foreign banks are less responsive to monetary shocks in host countries, as they adjust their outstanding loan portfolios and interest rates to a lesser extent than domestic private banks, independent of their liquidity, capitalization, size, efficiency, and credit risk, and although there exists a bank lending channel in the emerging economies, it is declining in strength due to the increased level of foreign bank penetration. We also explore possible driving factors for the different responses of foreign and domestic banks to monetary policy shocks by investigating foreign banks’ different behavior during banking crises and tranquil periods, the effects of mode of entry to host countries, the home-country effects, and the response of foreign banks from OECD countries vs. all foreign countries including non-OECD countries. We suggest the access of foreign banks to funding from parent banks through internal capital markets as the most convincing explanation.
► We examine the impact of foreign bank penetration on monetary policy transmission. ► Foreign banks are less responsive to monetary shocks than domestic banks. ► The bank lending channel in emerging economies is weakened due to foreign banks. ► We identify factors for different responses of foreign banks to monetary shocks.
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Details
- Title
- Foreign bank penetration and the lending channel in emerging economies: Evidence from bank-level panel data
- Creators
- Ji Wu - Penn State HarrisburgAlina C. Luca - International Monetary FundBang Nam Jeon - Drexel University
- Publication Details
- Journal of international money and finance, v 30(6), pp 1128-1156
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000295439400012
- Scopus ID
- 2-s2.0-80051818964
- Other Identifier
- 991019330619704721
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- Collaboration types
- Domestic collaboration
- Web of Science research areas
- Business, Finance