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Volume 71, Issue 2


Multinational Banks and the Drivers of Cross-Border Contagion

Radev, Deyan

Year: 2021   Volume: 71   Issue: 2   Pages: 119-143

Abstract: In this paper, we investigate the drivers of transmission of solvency and wholesale funding shocks to 84 OECD parent banks on the lending of 375 foreign subsidiaries. We find evidence for the transmission of both types of shocks. Parent undercapitalization affects the transmission of solvency shocks, while wholesale shocks transmit to subsidiaries of parents that rely primarily on wholesale funding. We further document that parent banks tend to guard investment markets at the expense of funding markets and to channel any excess liquidity to improve lending growth in lagging markets. These results have important theoretical and policy implications and add to our understanding of the transmission of solvency and wholesale shocks across borders.

JEL classification: G01, G21, G28

Keywords: commercial banks, global banks, wholesale shocks, solvency shocks, transmission, internal capital markets

DOI: https://doi.org/10.32065/CJEF.2021.02.02


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