Channels of Transmission of the 2007/09 Global Crisis to International Bank Lending in Developing Countries
During a financial crisis, credit provision by international banks may be stymied by three distinct, but related, channels: changes in lending standards as a result of increased economic uncertainty, changes in funding availability from interbank liquidity markets, and changes in solvency due to effects on bank balance sheets. This paper illuminates the manner by which each of these channels independently operated to affect developed-country bank lending in developing countries during the global financial crisis of 2007/09. It quantifies how changes in banks' uncertainty about the value of their asset holdings, access to interbank liquidity, and internal balance sheet considerations altered their supply of credit in the run-up, during, and in the immediate aftermath of the financial crisis, both in terms of their relative magnitudes, as well as the sensitivity of these magnitudes to the crisis.
Summary: | During a financial crisis, credit
provision by international banks may be stymied by three
distinct, but related, channels: changes in lending
standards as a result of increased economic uncertainty,
changes in funding availability from interbank liquidity
markets, and changes in solvency due to effects on bank
balance sheets. This paper illuminates the manner by which
each of these channels independently operated to affect
developed-country bank lending in developing countries
during the global financial crisis of 2007/09. It quantifies
how changes in banks' uncertainty about the value of
their asset holdings, access to interbank liquidity, and
internal balance sheet considerations altered their supply
of credit in the run-up, during, and in the immediate
aftermath of the financial crisis, both in terms of their
relative magnitudes, as well as the sensitivity of these
magnitudes to the crisis. |
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