Cross-border lending contagion in multinational banks

Arbeitspapier

We study both theoretically and empirically the inter- dependence of lending decisions in different country branches of a multinational bank. First, we model a bank that delegates the management of its foreign unit to a local manager with non-transferable skills. The bank differs from other international investors due to a liquidity threshold which induces a depositor run and a regulatory action if attained. A separate channel of shock propagation exists since lending decisions are influenced by delegation and precautionary motives. This can entail “contagion”, i.e. parallel reactions of the loan volumes in both countries to the parent bank home country disturbance. Second, we look for the presence of lending contagion by panel regression methods in a large sample of multinational banks and their affiliates. We find that the majority of multinational banks behave in line with contagion effect. In addition, the presence of contagion seems to be related to the geographical location of subsidiaries.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 807

Classification and Topics

• Classification: Wirtschaft ; International Finance Forecasting and Simulation: Models and Applications ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation ; Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
• Subject: delegation ; diversification ; lending contagion ; Multinational bank ; panel regression ; Internationale Bank ; Ausländische Tochtergesellschaft ; Kreditgeschäft ; Kreditrisiko ; Ansteckungseffekt ; Theorie ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Derviz, Alexis ; Podpiera, Jirí
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/153241
• Last update: 10.03.2025, 11:42 AM CET