## US vs. Euro Area: Who Drives Cross-Border Bank Lending to EMs?

_IMF Working Papers, September 20, 2019_

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## Bibliographic details
- Authors: Eugenio M Cerutti
- Published: September 20, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513511900.001

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### Overview
- Paper analyzes drivers of cross-border bank lending to 49 Emerging Markets (EMs) during the period 1990Q1-2014Q4.
- Simultaneous assessment of monetary, financial, and real sector shocks originating in the US and the euro area (EA), and their interactions.
- Author: Eugenio M Cerutti. Publication date: September 20, 2019. Pages: 32. Volume: 2019. Issue: 199. Working Paper No. 2019/199. Stock No: WPIEA2019199. ISBN: 9781513511900. ISSN: 1018-5941. DOI: https://doi.org/10.5089/9781513511900.001

### Key findings
- US monetary policy tightening has a negative impact on cross-border lending to EMs.
- EA monetary policy appears to have an impact mostly on Emerging Europe.
  - Interpretation: cross-border lending to most other EM regions is dollar denominated, reducing EA policy transmission outside Emerging Europe.
- Real sector shocks in both the US and EA trigger an increase in cross-border lending.
  - Effect is smaller for EA real sector shocks when the financial sector is explicitly modeled.
- Financial sector shocks (e.g., associated with a decrease in bank leverage):
  - If the shock originates in the US: broad-based overall contraction of cross-border lending.
  - If the shock originates in the EA: heterogeneous effects across borrowing regions.

### Drivers and interactions analyzed
- Monetary shocks: US and EA central bank policy actions and yield-curve related variables.
- Financial sector shocks: banking-sector variables including bank leverage.
- Real sector shocks: real economy disturbances in the US and EA.
- Simultaneous modeling allows assessment of interactions between monetary, financial, and real sector channels from two major supply regions to EM borrowing.

### Regional heterogeneity
- Emerging Europe: more sensitive to EA monetary policy shocks.
- Other EM regions: more exposed to US-driven transmission, consistent with dollar-denominated cross-border lending.
- Borrowing-region responses to EA-originating financial shocks are heterogeneous rather than uniformly contractionary.

### Subject coverage and keywords (as provided)
- Subjects: Bank credit, Banking, Central bank policy rate, Cross-border banking, Economic sectors, Financial sector, Financial services, Money, Yield curve.
- Keywords: Asia and Pacific, Bank credit, bank leverage, bond yield, Central bank policy rate, cross-border bank lending, Cross-border banking, cross-border lending, EA bank, EA monetary policy, EA shock, emerging markets, Europe, Financial sector, Global, global banks, monetary policy, risk attitude, WP, Yield curve.

### Policy implications (implied by results)
- Monitoring and macroprudential coordination should account for:
  - Dominant role of US monetary and financial shocks in triggering broad contractions in cross-border lending.
  - Regional sensitivity to EA policy in Emerging Europe.
  - Dollar-denomination of lending as a key factor in transmission differences across EM regions.
- Financial stability analysis of cross-border exposures should incorporate simultaneous US and EA shock channels and their interactions with real-sector developments.

*Eugenio M Cerutti, "US vs. Euro Area: Who Drives Cross-Border Bank Lending to EMs?", IMF Working Papers 2019, 199 (2019).*

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_Source: https://www.imf.org/en/publications/wp/issues/2019/09/20/us-vs-48609_