nep-ifn New Economics Papers
on International Finance
Issue of 2016‒04‒23
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Bank Leverage and Monetary Policy's Risk-Taking Channel: Evidence from the United States By DellAriccia, Giovanni; Laeven, Luc; Suarez, Gustavo
  2. Foreign Bank Identity: Does it Matter for Credit Growth? By Caroline Mehigan;
  3. Intra-Financial Lending, Credit, and Capital Formation By Juan A. Montecino; Gerald Epstein

  1. By: DellAriccia, Giovanni; Laeven, Luc; Suarez, Gustavo
    Abstract: We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on banks' internal ratings on loans to businesses over the period 1997 to 2011 from the Federal Reserve's survey of terms of business lending. We find that ex-ante risk taking by banks (measured by the risk rating of new loans) is negatively associated with increases in short-term interest rates. This relationship is more pronounced in regions that are less in sync with the nationwide business cycle, and less pronounced for banks with relatively low capital or during periods of financial distress.
    Keywords: banks; interest rates; leverage; Monetary policy; risk
    JEL: E43 E52 G21
    Date: 2016–04
  2. By: Caroline Mehigan (Department of Economics, Trinity College Dublin);
    Abstract: This paper provides robust evidence that the home country identity of a foreign-owned bank is an important consideration for credit growth. Among the set of foreign-owned banks we find significant differences in loan growth between banks from advanced than emerging source countries during the Global Financial Crisis. Further, we provide evidence that the regulatory framework prevailing in the home country is correlated with loan growth in the host economy. We show that foreign-owned banks from source countries with higher capital regulatory requirements were associated with significantly less loan growth pre-crisis, but provided a buffer during the crisis.
    Keywords: Cross-border banking, Foreign-owned banks, Credit growth, Crises.
    JEL: F15 F30 G15 G21
    Date: 2016–04
  3. By: Juan A. Montecino (University of Massachusetts, Amherst); Gerald Epstein (University of Massachusetts, Amherst)
    Abstract: This paper examines the effects of intra-financial lending – claims between financial institutions – on aggregate investment and credit to the non-financial sector in the United States. Building on Montecino, Epstein, and Levina (2014) we document a large growth in intra-financial assets beginning in the early 1980s. Using a vector autoregression model, we find that intra-financial lending is negatively related to gross capital formation and present evidence that this operates through a credit channel. However, we also find evidence of a structural break around the year 2000. Rolling impulse response functions suggest the presence of two alternative regimes over the post-war period: a “capital diversion†regime in which credit to the non-financial sector and intra-financial lending are substitutes, as well as a financial bubble regime in which credit and intra-financial lending are complements. In the latter case, credit to the non-financial sector and intra-financial lending appear to reinforce each other, although unsustainably. Our results suggest that increased intra-financial lending does not reflect financial innovations associated with more efficient risk bearing, liquidity provision, and credit allocation.
    JEL: G01 G10 G20
    Date: 2014–12

This nep-ifn issue is ©2016 by Vimal Balasubramaniam. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.