Shock Transmission through Cross-Border Bank Lending: Credit and Real Effects


Galina Hale

Tumer Kapan

Camelia Minoiu

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2016-01 | June 1, 2017

We study the transmission of financial shocks across borders through international bank connections. Using data on cross-border interbank loans among 6,000 banks during 1997-2012, we estimate the effect of banks’ direct and indirect exposures to banks in countries experiencing systemic banking crises (“crisis exposures”) on profitability, credit, and the performance of borrower firms. We show that direct crisis exposures reduce bank returns and tighten credit conditions through lower loan volumes and higher rates on new loans. Indirect crisis exposures amplify these effects. Crisis exposures reduce firm growth and investment even in countries not experiencing banking crises themselves, thus transmitting shocks across borders.

Article Citation

Minoiu, Camelia, Galina Hale, and Tumer Kapan. 2016. “Shock Transmission through Cross-Border Bank Lending: Credit and Real Effects,” Federal Reserve Bank of San Francisco Working Paper 2016-01. Available at