Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153241
Authors: 
Derviz, Alexis
Podpiera, Jirí
Year of Publication: 
2007
Series/Report no.: 
ECB Working Paper 807
Abstract: 
We study both theoretically and empirically the inter- dependence of lending decisions in different country branches of a multinational bank. First, we model a bank that delegates the management of its foreign unit to a local manager with non-transferable skills. The bank differs from other international investors due to a liquidity threshold which induces a depositor run and a regulatory action if attained. A separate channel of shock propagation exists since lending decisions are influenced by delegation and precautionary motives. This can entail “contagion”, i.e. parallel reactions of the loan volumes in both countries to the parent bank home country disturbance. Second, we look for the presence of lending contagion by panel regression methods in a large sample of multinational banks and their affiliates. We find that the majority of multinational banks behave in line with contagion effect. In addition, the presence of contagion seems to be related to the geographical location of subsidiaries.
Subjects: 
delegation
diversification
lending contagion
Multinational bank
panel regression
JEL: 
F37
G21
G28
G31
Document Type: 
Working Paper

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