The Domestic Credit Supply Response to International Bank Deleveraging: Is Asia Different?

October 26, 2012

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Format: Chicago

Shekhar Aiyar, and Sonali Jain-Chandra. The Domestic Credit Supply Response to International Bank Deleveraging: Is Asia Different?, (USA: International Monetary Fund, 2012) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

During the global financial crisis, European banks contracted foreign claims on recipient economies sharply. This paper examines the impact of that deleveraging on credit supply in recipient economies, with a particular focus on Asia. Identification is achieved by exploiting heterogeneity in ex-ante patterns of funding reliance on different European banking systems, and in variation in the ratio of local claims in local currency to total foreign claims in recipient economies. These sources of variation are used to create instruments for the deleveraging shock. We find that the contraction in European bank foreign claims was associated with a substantial reduction in domestic credit supply in a broad sample of countries. However, the credit supply response in Asia was only about half the size of the response in non-Asian countries, possibly due to a more robust policy response and healthier local bank balance sheets at the outset of the crisis.

Subject: Bank credit, Banking, Credit, Domestic credit, Financial institutions, Foreign banks, Foreign currency exposure, Money

Keywords: Asia, Asia and Pacific, Asia intercept, Bank capital injection, Bank credit, Credit, Cross-border lending, Domestic credit, Fed swap lines, Foreign banks, Foreign currency exposure, Global, Global banks, Instrumental variables, Liquidity shock, Parent bank, Supply response, WP

Publication Details

Pages:

15
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/258
Stock No:

WPIEA2012258
ISBN:

9781475580914
ISSN:

1018-5941

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