Foreign Banks and International Transmission of Monetary Policy : Evidence from the Syndicated Loan Market
This paper uses loan-level data from 124 countries over 1995–2015 to examine the transmission of monetary policy through the cross-border syndicated loan market. The results show that the expansion of monetary policy increases cross-border credit s...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/190371483993294665/Foreign-banks-and-international-transmission-of-monetary-policy-evidence-from-the-syndicated-loan-market http://hdl.handle.net/10986/25946 |
| Summary: | This paper uses loan-level data from 124
countries over 1995–2015 to examine the transmission of
monetary policy through the cross-border syndicated loan
market. The results show that the expansion of monetary
policy increases cross-border credit supply especially to
weaker firms. However, greater foreign bank presence in the
borrower country appears to reduce the potentially
destabilizing impact of lower policy interest rates on
cross-border lending, as it attenuates increases in loan
volume and maturity while magnifying increases in
collateralization and covenant use. The mitigating effect of
foreign banking presence in the borrowing country on the
transmission of monetary policy is robust to controlling for
borrower-country economic and financial development, and a
range of borrower and lender country policies and
institutions, including the strength of bank regulation and
supervision, exchange rate flexibility, and restrictions on
capital flows. The findings qualify the characterization of
international banks as sources of credit instability, and
suggest that foreign bank entry can improve the stability of
cross-border credit in the face of international monetary
policy shocks. |
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