IMF Working Papers

The Great Cross-Border Bank Deleveraging: Supply Constraints and Intra-Group Frictions

Author/Editor:

Eugenio M Cerutti ; Stijn Claessens

Publication Date:

September 25, 2014

Electronic Access:

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Summary:

International banks greatly reduced their direct cross-border and local affiliates’ lending as the global financial crisis strained balance sheets, lowered borrower demand, and changed government policies. Using bilateral, lender-borrower countrydata and controlling for credit demand, we show that reductions largely varied in line with markets’ prior assessments of banks’ vulnerabilities, with banks’ financial statement variables and lender-borrower country characteristics playing minor roles. We find evidence that moving resources within banking groups became more restricted as drivers of reductions in direct cross-border loans differ from those for local affiliates’ lending, especially for impaired banking systems. Home bias induced by government interventions, however, affected both equally.

Series:

Working Paper No. 2014/180

Subject:

Bank credit Banking Commercial banks Cross-border banking Financial institutions Financial services Financial statements Foreign banks Money Public financial management (PFM)