Monitoring Costs and Multinational-Bank Lending

Preprint OPEN
Ralph de Haas (2006)
  • Subject: multinational banks; monitoring; credit supply.
    • jel: jel:F23 | jel:G21 | jel:F15 | jel:F36

We use a two-country model to examine how endogenous changes in monitoring intensity and exogenous changes in monitoring efficiency affect multinational-bank lending. First, an endogenous decline in monitoring intensity limits the amount of deposits that banks can attract. This lowers bank lending. Shocks that reduce bank capital relative to firm capital therefore have a stronger negative effect on bank lending compared to a model with exogenous monitoring intensity. Second, international differences in monitoring efficiency create a lending bias towards the country where monitoring is performed most efficiently. Multinational-bank subsidiaries that monitor efficiently attract more deposits and lend more than less efficient subsidiaries.
  • References (20)
    20 references, page 1 of 2

    3. See Demirgüç-Kunt and Huizinga (1999), Claessens et al. (2001), Unite and Sullivan (2003) and Lensink and Hermes (2004).

    4. Focarelli and Pozzolo (2000) find that banks that expand abroad are amongst the most efficient banks in their home country and come from the most developed banking markets. At the same time, they expand to countries in which the banking sectors are less efficient.

    5. Dages et al. (2000), Peek and Rosengren (2000b), Goldberg (2001), Crystal et al. (2002), Martinez Peria et al. (2002) and De Haas and Van Lelyveld (2004, 2006).

    6. Peek and Rosengren (1997, 2000a) and Van Rijckeghem and Weder (2001).

    7. Dahl and Shrieves (1999), Buch (2000), Barajas and Steiner (2002), Jeanneau and Micu (2002), Morgan and Strahan (2004) and De Haas and Van Lelyveld (2006).

    8. Calvo et al. (1993), Hernandez and Rudolph (1995), Dahl and Shrieves (1999), Goldberg (2001), Jeanneau and Micu (2002), Martinez Peria et al. (2002) and De Haas and Van Lelyveld (2006). Depending on the sample period and the sample of countries, some studies find a positive correlation between multinational-bank lending and the home-country business cycle, while other studies find a negative relationship.

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