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Bank loan supply during crises: the importance of geographic diversification


Doerr, Sebastian; Schaz, Philipp (2019). Bank loan supply during crises: the importance of geographic diversification. Working paper series / Department of Economics 288, University of Zurich.

Abstract

We classify a large sample of banks according to the geographic diversification of their international syndicated loan portfolio. Our results show that diversified banks maintain higher loan supply during banking crises in borrower countries. The positive loan supply effects lead to higher investment and employment growth for firms. Diversified banks are stabilizing due to their ability to raise additional funding during times of distress, which also shields connected markets from spillovers. Further distinguishing banks by nationality reveals a pecking order: diversified domestic banks are the most stable source of funding, while foreign banks with little diversification are the most fickle. Our findings suggest that the decline in financial integration since the recent crisis increases countries’ vulnerability to local shocks.

Abstract

We classify a large sample of banks according to the geographic diversification of their international syndicated loan portfolio. Our results show that diversified banks maintain higher loan supply during banking crises in borrower countries. The positive loan supply effects lead to higher investment and employment growth for firms. Diversified banks are stabilizing due to their ability to raise additional funding during times of distress, which also shields connected markets from spillovers. Further distinguishing banks by nationality reveals a pecking order: diversified domestic banks are the most stable source of funding, while foreign banks with little diversification are the most fickle. Our findings suggest that the decline in financial integration since the recent crisis increases countries’ vulnerability to local shocks.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:F30, G01, G15, G21, G32
Uncontrolled Keywords:Diversification, global banking, financial stability, syndicated loan market, banking crisis
Language:English
Date:March 2019
Deposited On:29 May 2018 07:31
Last Modified:15 Apr 2019 14:38
Series Name:Working paper series / Department of Economics
Number of Pages:70
ISSN:1664-7041
Additional Information:Revised version
OA Status:Green
Official URL:https://www.econ.uzh.ch/static/release/workingpapers.php?id=967

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