Cross-Border Banking and the International Transmission of Financial Distress During the Crisis of 2007-2008

By Alexander A. Popov, Gregory F. Udell. Social Science Research Network, 2010

128 citations recorded by the source corpus.

We study the effect of financial distress in foreign parent banks on local SME financing in 14 central and eastern European countries during the early stages of the 2007-2008 financial crisis. We use survey data on applicant and non-applicant firms that enable us to disentangle effects driven by shocks to the banking system from recession-driven demand shocks that may vary across lenders. We find strong evidence that credit tightened in the relatively early stages of the crises caused by the following types of bank financial distress: 1) low equity ratio; 2) low Tier 1 capital ratio; and 3) losses on financial assets. We also find that foreign banks transmit to Main Street a larger portion of similar financial shocks than domestic banks. The observed decline in credit is greater among high-risk firms and firms with fewer tangible assets. JEL Classification: E44, E51, F34, G21

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/7e1629913e8d53b016246fbe78146fccad514e18

Citations in the corpus

• Foreign Banks: Trends, Impact and Financial Stability (2012, unknown): “De Haas, Korniyenko, Loukoianova and Pivovarsk (2011) and Popov and Udell (2010) find for emerging European countries that foreign subsidiaries reduced their lending more compared to domestic banks.”
• Cross-Border Banking in Europe: Implications for Financial Stability and Macroeconomic Policies (2011, unknown): “Popov and Udell (2010) looked at micro-data to assess the interaction of crossborder bank presence and firms’ access to external funding. Comparing 2005 and 2008 firm-level survey data, they show that firms were relatively more financially constrained in 2008 in locations with a higher presence of f”
• Credit Supply During a Sovereign Debt Crisis (2018, unknown): “Popov and Udell (2010), based on survey data on SME nancing on 14 CEE countries in the period 2005-2008, nd evidence of international transmission of nancial distress in the early stage of the crisis, with Western European banks restricting credit supply more than domestic banks.”
• Small Bank Comparative Advantages in Alleviating Financial Constraints and Providing Liquidity Insurance over Time (2017, unknown): “5 These studies include Popov and Udell (2012), Cotugno, Monferra and Sampagnaro (2012), Jimenéz, Ongena, Peydró, and Saurina (2012), and Iyer, Da-Rocha-Lopes, Peydró, and Schoar (2013).”