Determinants of loans and deposits strategies of foreign bank subsidiaries in emerging countries

Mehdi Mili, Jean-Michel Sahut

Abstract


Abstract. This paper focuses on the transmission of bank liquidity shocks in Loan and deposit in emerging markets. First, we attempt to identify factors affecting the credit strategy of foreign banks in emerging countries. Second, we test whether depositors exert market discipline on foreign subsidiaries. By combining financial variables of subsidiaries and their parent banks and macroeconomic variables of host and home countries, we investigate the factors that may affect the behavior of depositors. Our empirical approach is based on a Partial Least Squares-Path model that allows us to indentify the causal relationships between the various groups of variables. Our results show that foreign bank lending is determined by the specific financial variables of the parent bank and macroeconomic variables of the country of origin. This support that the strategy's credit of foreign subsidiary is centrally managed at the parent bank and credit supply of subsidiaries depends primary on the financial situation of its parent bank. Finally we find evidence of market discipline exercised over foreign subsidiaries in emerging countries. We show that market discipline is strongly affected by the specific characteristics of the subsidiary.

Full Text:

PDF ()

References


Allen F., A.Hryckiewicz, O.Kowalewski & G.Tümer-Alkan. 2010. “Transmission of Bank Liquidity Shocks in Loan and Deposit Markets: The Role of Interbank Borrowing and Market Monitoring” Wharton Financial Institutions Center Working Paper 10-28.

Arvai Z., Driessen K. and Ötker-Robe I. 2009. “Regional Financial Interlinkages and Financial Contagion Within Europe”, Working Paper, FMI, n° 09/6, janvier.

Berger, A., 1991. “Market Discipline in Banking, Proceedings of a Conference on Bank Structure and Competition, Federal Reserve Bank of Chicago, pp. 419-437.

Bernanke, B. and H. James 1991. “The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison,” Financial Markets and Financial Crises, R. Glenn Hubbard, ed., Chicago: University of Chicago Press.

Bernanke, Ben S & Blinder, Alan S, 1988. “Credit, Money, and Aggregate Demand”, American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May.

Cetorelli, N. and L.S. Goldberg, 2012. “Banking Globalization and Monetary Transmission,” The Journal of Finance. Volume 67, Issue 5, pages 1811–1843, October 2012.

Chin, 1998, “The partial least squares approach to structural equation modeling. In:Marcoulides GA (ed) Modern methods for business research. Lawrence Erlbaum Associates,Mahwah, NJ, pp 295–336.

Claessens, Stijn and Neeltje van Horen, 2009, “Learning by Doing in Foreign Banking,” Mimeo, DNB and IMF.

De Haas, R. and I. van Lelyveld, 2010. “Internal Capital Markets and Lending by Multinational Bank Subsidiaries,” Journal of Financial Intermediation, vol. 19(1), 1-25.

De Haas, R. and I. van Lelyveld, 2006. “Foreign Banks and Credit Stability in Central and Eastern Europe. A Panel Data Analysis,” Journal of Banking and Finance 30, 1927– 1952.

De la Torre, A., Levy Yeyati, E., Schmukler, S., 2003. “Living and dying with hard pegs: the rise and fall of Argentina’s. ” Currency Board. Economia Spring 2003, 43–107.

Diamond, DouglasW., and Philip H. Dybvig. 1983. “Bank Runs, Deposit Insurance, and Liquidity.” Journal of Political Economy 91 (5): 401–19.

Efron B, Tibshirani RJ. 1993, “An introduction to the bootstrap. Chapman and Hall, New York,NY .

Esposito Vinzi, V. , 2008, “The contribution of PLS regression to PLS path modelling: formative measurement model and causality network in the structural model. ” In: Joint Statistical Meetings (JSM) 2008, American Statistical Association, Denver, Colorado, United States of America, August 7th 2008.

Gambacorta, L. 2005. “Inside the bank lending channel”, European Economic Review, 49, 1737-59.

Herring, R.J., 2007. “Conflicts between Home & Host Country Prudential Supervisors,” Wharton Financial Institution Center Working Paper 07-33.

Jacklin, Charles J., and Sudipto Bhattacharya. 1988. “Distinguishing Panics and Information-based Bank Runs: Welfare and Policy Implications.” Journal of Political Economy 96 (June 1988): 568–92.

Kia, Amir and Ali F. Darrat 2007, “Modeling Money Demand Under the Profit-Sharing Banking Scheme: Some Evidence on Policy Invariance and Long-Run Stability”, Global Finance Journal, Vol. 18, pp.104-123.

Klapper, L. F. and Love, I., 2004, “Corporate Governance, Investor Protection, and Performance in Emerging Markets. ” Journal of Corporate Finance, 10, pp. 703-728.

Loupias C., F. Savignac et P. Sevestre, 2003. “Monetary policy and the bank lending channel in France : are there asymmetries ?”, in Monetary transmission in the Euro area, eds I. Angeloni, B. Mojon et A. Kashyap, Cambridge University Press.

Martinez Peria, M.S., A. Powell, and I. Vladkova Hollar, 2002, “Banking on Foreigners: The Behavior of International Bank Lending to Latin America, 1985–2000,” World Bank Working Paper No. 2893. World Bank, Washington, DC.

Mitton, T. 2002, “A Cross-firm Analysis of the Impact of Corporate Governance on the East Asian Financial Crisis. Journal of Financial Economics, 64, pp. 215- 241.

Peek, J. and E. Rosengren , 1997, “Collateral Damage: Effects of the Japanese Real Estate Collapse on Credit Availability and Real Activity in the United States, ” American Economic Review 90, Septembre 1987, p 495505.

Schnabl, Philipp. 2011. “The International Transmission of Bank Liquidity Shocks: Evidence from an Emerging Market.” Journal of Finance, Volume: LXVII, Issue: 3, Pages: 897-932.

Stein, J. C. (1997), “Internal Capital Markets and the Competition for Corporate Resources.” Journal of Finance, Vol. 52, pp. 111–133.

Tenehaus, M. 1998, “La Régression PLS: Théorie et Pratique”. Editons Technip, Paris. (in French).

Werts CE, Linn RL, Jöreskog KG 1974, “Intraclass reliability estimates: testing structural assumptions”. Educ Psychol Meas 34(1):25–3.




DOI: https://doi.org/10.5195/emaj.2013.42

Refbacks

  • There are currently no refbacks.




Copyright (c)