On June 8th, 2018, Harry Huizinga (Tilburg University) presented his current research topic "Foreign Banks and International Transmission of Monetary Policy: Evidence from the Syndicated Loan Market" (co-authored with Asli Demirgüç-Kunt, World Bank, and Bálint L. Horváth, University of Bristol) at the WHU Research Seminar in Finance & Accounting.
This paper uses loan-level data from 124 countries over 1995–2015 to examine the transmission of monetary policy through the cross-border syndicated loan market. An expansion of monetary policy increases cross-border credit supply especially to weaker firms. However, greater foreign bank presence in the borrower country appears to reduce the potentially destabilizing impact of lower policy interest rates on cross-border lending volume. The mitigating effect of foreign banking presence on the transmission of monetary policy is robust to controlling for borrower-country economic and financial development, and a range of borrower and lender country policies and institutions, including the strength of bank regulation and supervision, exchange rate flexibility, and restrictions on capital flows. These findings qualify the characterization of international banks as sources of credit instability, and suggest that foreign bank entry can improve the stability of cross-border credit in the face of international monetary policy shocks.