What determines cross-border bank lending and risk-taking? The effects of culture, geography, institutions, and information exchange

We explore the effects of culture, regulation, and geographical factors on bilateral cross-border bank lending. Using a newly compiled dataset on BIS-reporting banks’ activities, we find that geographical factors, information flows and common institutional arrangements are the primary drivers of bilateral bank lending. Trust between individuals in the two countries matters only as a proxy for other cultural similarities. The relationship between bank regulatory differences and lending flows has changed over time. Before the crisis, banks made more cross-border loans in countries with regulations that promoted market discipline and transparency, but took on more risk in countries that had less transparency, perhaps in pursuit of higher returns. This relationship between transparency and banking flows has disappeared in the aftermath of the financial crisis

A global lending channel unplugged? Does U.S. monetary policy affect cross-border and affiliate lending by global U.S. banks?

We examine how U.S. monetary policy affects the international activities of U.S. banks. We access a rarely studied U.S. bank-level regulatory dataset to assess at a quarterly frequency how changes in the U.S. Federal funds rate (before the crisis) and quantitative easing (after the onset of the crisis) affect changes in cross-border claims by U.S. banks across countries, maturities and sectors, and also affect changes in claims by their foreign affiliates. We find robust evidence consistent with the existence of a potent global bank lending channel. In response to changes in U.S. monetary conditions, U.S. banks strongly adjust their cross-border claims in both the pre- and post-crisis period. However, we also find that U.S. bank affiliate claims respond mainly to host country monetary conditions

CEO Compensation, Pay Inequality, and the Gender Diversity of Bank Board of Directors

Greater gender diversity on bank board of directors is associated with higher compensation inequality because CEOs at these banks have higher base salary. This effect disappears during the financial crisis, largely due to adjustment of non-salary compensation

The performance effects of gender diversity on bank boards

Previous literature has shown mixed results on the role of female participation on bank boards and bank performance: some find that more women on boards enhance financial performance, while others find negative or no effects. Applying Instrumental Variables methods to data on approximately 90 US bank holding companies over the 1999-2015 period, we argue that these inconclusive results are due to the fact that there is a non-linear, U-shaped relationship between gender diversity on boards and various measures of bank performance: female participation has a positive effect once a threshold level of gender diversity is achieved. Furthermore, this positive effect is only observed in better capitalized banks. Our results suggest that continuing the voluntary expansion of gender diversity on bank boards will be value-enhancing, provided that they are well capitalized

Foreign lending, local lending, and economic growth

Recent research has shown that there is significant cross-country heterogeneity in the previously well-established relationship of finance and long-run growth. We explore this heterogeneity by estimating finite mixture models and by considering the effects of foreign and domestic lending separately. We find that bank lending does not have the same effect on growth or savings in all countries. Country characteristics such as the extent of stock market development, the degree of rule of law, and even the development of the banking sector itself vary considerably across countries and affect the productivity of bank lending in encouraging growth and savings. Furthermore, the effect of bank finance on growth and the effect of foreign bank involvement depend on 1) how well developed the banking sector is, and 2) if foreign banks are involved via loans made by affiliates located within the country or via cross-border loans. The experience of lenders with a presence in the country is important, but only once a threshold level of financial sector development is reached. In countries with underdeveloped banking sectors, the influence of foreign-owned lenders relative to locally-owned banks can be detrimental to growth

Culture, geography, institutions and cross-border bank lending and risk taking

We explore the relationship of culture, regulation, and geographical factors with bilateral cross-border bank lending. Using a newly compiled dataset on BIS-reporting banks’ activities, we find that geographical proximity, information flows and common institutional arrangements are the primary correlates of bilateral bank lending. Trust between individuals in the two countries matters only as a proxy for other cultural similarities. The relationship between bank regulatory differences and lending flows has changed over time. Before the crisis, banks made more cross-border loans in countries with regulations that promoted market discipline and transparency, but took on more risk in countries that had less transparency, perhaps in pursuit of higher returns. This relationship between transparency and banking flows has disappeared in the aftermath of the financial crisi

What determines cross-border bank lending and risk-taking? The effects of culture, geography, institutions, and information exchange

We explore the effects of culture, regulation, and geographical factors on bilateral cross-border bank lending. Using a newly compiled dataset on BIS-reporting banks’ activities, we find that geographical factors, information flows and common institutional arrangements are the primary drivers of bilateral bank lending. Trust between individuals in the two countries matters only as a proxy for other cultural similarities. The relationship between bank regulatory differences and lending flows has changed over time. Before the crisis, banks made more cross-border loans in countries with regulations that promoted market discipline and transparency, but took on more risk in countries that had less transparency, perhaps in pursuit of higher returns. This relationship between transparency and banking flows has disappeared in the aftermath of the financial crisis

Board of Directors’ Networks, Gender, and Firm Performance in a Male-Dominated Industry: Evidence from U.S. Banking

Leadership roles in banking remain dominated by men; only about one in six bank board members is female. Connections among board members can improve firm performance, but women on boards are much less connected than men. In this paper, we study how gender relates to the role of connections: how do connected female versus male board members affect banks’ performance? Using IV techniques to account for the endogeneity of connections, we find that (1) better connected female (but not male) board members improve bank profitability and reduce earnings management; (2) connections of women on important board committees also improve performance – especially when the share of women on the board is relatively high (above the median)

A Global Lending Channel Unplugged? Does U.S. Monetary Policy Affect Cross-border and Affiliate Lending by Global U.S. Banks?

We examine how U.S. monetary policy affects the international activities of U.S. Banks. We access a rarely studied US bank-level dataset to assess at a quarterly frequency how changes in the U.S. Federal funds rate (before the crisis) and quantitative easing (after the onset of the crisis) affects changes in cross-border claims by U.S. banks across countries, maturities and sectors, and also affects changes in claims by their foreign affiliates. We find robust evidence consistent with the existence of a potent global bank lending channel. In response to changes in U.S. monetary conditions, U.S. banks strongly adjust their cross-border claims in both the pre and post-crisis period. However, we also find that U.S. bank affiliate claims respond mainly to host country monetary conditions