Rima Turk Ariss (Lebanese American University, Lebanon): Foreign banks during financial crises
Foreign banks during financial crises (with Allen Berger and Tanakorn Makaew - first draft)
This paper examines lending behavior of foreign and domestic banks during normal times and financial crises. We first find that foreign banks are more conservative than domestic banks. During normal times, foreign banks tend to have safer balance sheets, safer loan contracts (smaller loans with lower spreads and shorter maturities), and safer borrowers. Second, we find that the 2008 financial crisis led to a sharp decline in bank loans and profits. This decline is smaller for foreign banks. Third, at the individual loan level, the crisis resulted in decreases in loan size, number of loans, and maturities, as well as increases in loan spreads. The contraction in loan terms is smaller for foreign banks. Fourth, the differential reactions between foreign and domestic banks can be explained completely by the differences in borrower composition and deal characteristics. There is no significant difference between foreign and domestic banks after controlling for borrower and deal characteristics. Overall, our results suggest that loan-level analyses are crucial for the understanding of foreign and domestic banks behavior during financial crises.
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