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The Lending Channel in Emerging Economies: Are Foreign Banks Different?
Author:
Mr. Francisco F. Vazquez
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Ms. Carmen Reinhart null

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Mr. Marco Arena
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Series:
IMF Working Papers
Volume/Issue:
Volume 2007: Issue 048
Language:
English
Publication Date:
01 Mar 2007
DOI:
https://doi.org/10.5089/9781451866124.001
ISBN:
9781451866124
ISSN:
1018-5941
Pages:
52
Keywords:
WP; foreign bank; loan growth; money market rate; bank characteristic; bank ownership; panel dataset; Lending channel; monetary transmission; credit markets; foreign banks; Loans; Reserve requirements; Money markets; Deposit rates; Asia and Pacific
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper exploits a panel dataset comprising 1,565 banks in 20 emerging countries during 1989- 2001 and compares the response of the volume of loans and the rates on loans and deposits to various measures of monetary conditions across domestic and foreign banks. It also looks for systematic differences in the behavior of domestic and foreign banks during periods of financial distress and tranquil times. Using differences in bank ownership as a proxy for financial constraints, the paper finds weak evidence that foreign banks have a lower sensitivity of credit to monetary conditions relative to their domestic competitors, with the differences driven by banks with lower asset liquidity and/or capitalization. The lending and deposit rates of foreign banks tend to be smoother during periods of financial distress. However, the differences across domestic and foreign banks do not appear to be strong. These results provide weak support to the existence of supply-side effects in credit markets and suggest that foreign bank entry in emerging countries may have contributed somewhat to stability in credit markets.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund