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Supply- and Demand-side Factors in Global Banking

Author

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  • Amiti, Mary
  • McGuire, Patrick
  • Weinstein, David
Abstract
What is the role for supply and demand forces in determining movements in international banking flows? Answering this question is crucial for understanding the international transmission of financial shocks and formulating policy. This paper addresses the question by using the method developed in Amiti and Weinstein (forthcoming) to exactly decompose the growth in international bank credit into common shocks, idiosyncratic supply shocks and idiosyncratic demand shocks for the period 2000-2016. A striking feature of the global banking flows data can be characterized by what we term the “Anna Karenina Principle†: all healthy credit relationships are alike, each unhealthy credit relationship is unhealthy in its own way. During non-crisis years, bank flows are well-explained by a common global factor and a local demand factor. But during times of crisis flows are affected by idiosyncratic supply shocks to a borrower country’s creditor banks. This has important implications for why standard models break down during crises.

Suggested Citation

  • Amiti, Mary & McGuire, Patrick & Weinstein, David, 2017. "Supply- and Demand-side Factors in Global Banking," CEPR Discussion Papers 12091, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12091
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    Cited by:

    1. Scheubel, Beatrice & Stracca, Livio & Tille, Cédric, 2019. "The global financial cycle and capital flow episodes: a wobbly link?," Working Paper Series 2337, European Central Bank.
    2. Avdjiev, Stefan & Hale, Galina, 2019. "U.S. monetary policy and fluctuations of international bank lending," Journal of International Money and Finance, Elsevier, vol. 95(C), pages 251-268.
    3. Park, Cyn-Young & Shin, Kwanho, 2021. "COVID-19, nonperforming loans, and cross-border bank lending," Journal of Banking & Finance, Elsevier, vol. 133(C).
    4. Leonardo Bonilla-Mejía & Mauricio Villamizar-Villegas, 2022. "The Leading Role of Bank Supply Shocks," Borradores de Economia 1205, Banco de la Republica de Colombia.
    5. Federico Cingano & Fadi Hassan, 2020. "International financial flows and misallocation," CEP Discussion Papers dp1697, Centre for Economic Performance, LSE.
    6. Karel Brůna & Martin Mandel, 2020. "Analýza vývoje čistých domácích a zahraničních aktiv bankovní soustavy (příklad České republiky v letech 1996-2017) [Analysis of Dynamics of Net Home and Foreign Assets of Banking Systems Using the," Politická ekonomie, Prague University of Economics and Business, vol. 2020(5), pages 489-514.
    7. Giorgio Barba Navaretti & Giacomo Calzolari & Alberto Franco Pozzolo & Maria Teresa Trentinaglia Daverio, 2019. "Few Large with Many Small: Banks Size Distribution and Cross-Border Financial Linkages," Journal of Financial Services Research, Springer;Western Finance Association, vol. 56(3), pages 229-258, December.
    8. Lorenz Emter & Martin Schmitz & Marcel Tirpák, 2019. "Cross-border banking in the EU since the crisis: What is driving the great retrenchment?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(2), pages 287-326, May.
    9. Shim, Ilhyock & Shin, Kwanho, 2021. "Financial stress in lender countries and capital outflows from emerging market economies," Journal of International Money and Finance, Elsevier, vol. 113(C).
    10. Sánchez Serrano, Antonio, 2021. "The impact of non-performing loans on bank lending in Europe: An empirical analysis," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    11. Catherine Koch & Eli M Remolona, 2018. "Common lenders in emerging Asia: their changing roles in three crises," BIS Quarterly Review, Bank for International Settlements, March.
    12. Catão, Luís & Ditzen, Jan & te Kaat, Daniel Marcel, 2023. "Global Factors in Non-core Bank Funding and Exchange Rate Flexibility," CEPR Discussion Papers 18643, C.E.P.R. Discussion Papers.
    13. Becker, Chris & Ossandon Busch, Matias & Tonzer, Lena, 2021. "Macroprudential policy and intra-group dynamics: The effects of reserve requirements in Brazil," Journal of Corporate Finance, Elsevier, vol. 71(C).
    14. Avdjiev, Stefan & Aysun, Uluc & Hepp, Ralf, 2019. "What drives local lending by global banks?," Journal of International Money and Finance, Elsevier, vol. 90(C), pages 54-75.
    15. Altavilla, Carlo & Boucinha, Miguel & Bouscasse, Paul, 2022. "Supply or Demand: What Drives Fluctuations in the Bank Loan Market?," Working Paper Series 2646, European Central Bank.

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    More about this item

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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