Foreign Banks and International Transmission of Monetary Policy: Evidence from the Syndicated Loan Market

A. Demirgüç-Kunt, B.L. Horváth, H. Huizinga | The World Bank

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.

Categories:
Regional Financial Integration, Banking
Pages:
53
Year of publication:
09.01.2017
File size:
739390 bytes