What drives local lending by global banks?

BIS Working Papers  |  No 746  | 
26 September 2018



The literature on the behaviour of global banks has focused more on cross-border than on local lending. The distinction between the two types of lending is important for two reasons. First, local lending is much more stable, growing more slowly during expansions and shrinking less sharply during bad times. Second, local lending has grown much more important over the past two decades.


We use bank-level data to look at the factors that determine local lending by banks' foreign subsidiaries. More concretely, we compare the importance of factors that are specific to the host country with those that are specific to a bank's owner. We estimate the impact of host-specific factors by comparing the lending behaviour of subsidiaries that are located in different countries but have the same parent. We estimate the impact of owner-specific factors by comparing the lending behaviour of subsidiaries that are located in the same country but have different parents.


We find that host-specific factors tend to influence local lending by global banks more strongly than owner-specific factors do. Specifically, the state of the host country's economy and the financial health of local subsidiaries are more important than the macroeconomic conditions in parent countries and the financial condition of a bank's parent company.



We find that the lending behaviour of global banks' subsidiaries throughout the world is more closely related to local macroeconomic conditions and their financial conditions than to those of their owner-specific counterparts. This inference is drawn from a panel dataset populated with bank-level observations from the Bankscope database. Using this database, we identify ownership structures and incorporate them into a unique methodology that identifies and compares the owner and subsidiary-specific determinants of lending. A distinctive feature of our analysis is that we use multi-dimensional country-level data from the BIS international banking statistics to account for exchange rate fluctuations and cross-border lending. 

JEL classification: E44, F32, G15, G21

Keywords: bankscope, G-SIB, bank-level data, global banks, BIS international banking statistics