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

Liu, Edith X.; Pogach, Jonathan

doi:10.17016/IFDP.2017.1198

Working Paper

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

Abstract: This paper examines the effect of foreign lending on the domestic lending for US global banks. We show that greater foreign loan growth complements, rather than detracts from, domestic commercial lending. Exploiting a confidential data (FFIEC 009) on international loan exposure of US banks, we estimate that a 1% increase in foreign office lending is associated with a 0.6% growth in domestic commercial lending, suggesting complementarity across these lending channels. However, when capital raising is tight during the Global Financial Crisis of 2008, we find that foreign lending did come at the expense of domestic lending.

Keywords: Multinational; Global Banking; Commercial Loans; Foreign Investments;

JEL Classification: F21; F23; F36; G21;

https://doi.org/10.17016/IFDP.2017.1198