Revitalizing Securitization for Small and Medium-Sized Enterprises in Europe

Abstract

DISCLAIMER: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.

The effect of foreign lending on domestic loans: An analysis of US global banks

“…Our results show that US global banks treat foreign and domestic lending more as complements than substitutes, where we estimate that a 1% increase in foreign lending 1 Papers in the industrial literature include those at the macroeconomic level such as Feldstein (1995) and those at the industry level, such as Arndt, Buch, and Schnitzer (2010). corresponds to 0.6% increase in domestic loan volume.…”

“…To understand the cross-border lending decision of global banks, it is natural to adopt the framework used for analyzing foreign and domestic real investment decisions of multinational industrial firms. 1 However, the lack of available data on the geographical location of bank lending has posed a significant challenge. To this end, we exploit a confidential dataset (FFIEC 009) of US bank's foreign country exposure and apply the methodology of Desai, Foley, and Hines (2009) to identify the relationship between foreign and domestic lending when both are simultaneously decided.…”

“…summarizes the relationship between changes in foreign office lending and changes in domestic C&I lending using various specifications and instruments. Column(1) reports the basic OLS specification in Equation(3)and shows that the change in foreign office lending is positively associated with changes in domestic lending. Since the OLS estimate may be biased, the remainder of Table #1 reports the results for the 2SLS specification, which uses weighted average foreign GDP growth or innovations to foreign GDP growth, to instrument for foreign office lending.…”

The Effect of Foreign Lending on Domestic Loans: An Analysis of U.S. Global Banks

“…Our results show that US global banks treat foreign and domestic lending more as complements than substitutes, where we estimate that a 1% increase in foreign lending 1 Papers in the industrial literature include those at the macroeconomic level such as Feldstein (1995) We view our result as the funding side counterpart of real investment made by multinational firms, and as potentially capturing the finances that follow the production side complementarities. Finally, we find that the relationship reverses when bank funding conditions tighten, thus supporting the hypothesis that when capital constraints bind then banks will necessarily trade off lending.…”

“…1 However, the lack of available data on the geographical location of bank lending has posed a significant challenge. To this end, we exploit a confidential dataset (FFIEC 009) of US bank's foreign country exposure and apply the methodology of Desai, Foley, and Hines (2009) to identify the relationship between foreign and domestic lending when both are simultaneously decided.…”