Review of Peter J. Montiel 'Macroeconomics in Emerging Markets'

Review of Peter J. Montiel 'Macroeconomics in Emerging Markets'Book review, macroeconomics, emerging markets

Foreign banks and foreign currency lending in emerging Europe

Based on survey data from 193 banks in 20 countries we provide the first bank-level analysis of the relationship between bank ownership, bank funding and foreign currency (FX) lending across emerging Europe. Our results contradict the widespread view that foreign banks have been driving FX lending to retail clients as a result of easier access to foreign wholesale funding. Our cross-sectional analysis shows that foreign banks do lend more in FX to corporate clients but not to households. Moreover, we find no evidence that wholesale funding had a strong causal effect on FX lending for either foreign or domestic banks. Panel estimations show that the foreign acquisition of a domestic bank does lead to faster growth in FX lending to households. However, this is driven by faster growth in household lending in general not by a shift towards FX lending.Foreign banks; FX lending; financial integration; Emerging Europe

Foreign banks in transition countries. To whom do they lend and how are they financed?

We use focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltic States to analyse the small-business lending and internal capital markets of multinational financial institutions. Our approach allows us to complement the standard empirical literature, which has difficulty in analysing important issues such as lending technologies and capital allocation. We find that the acquisition of local banks by foreign banks has not led to a persistent bias in these banks’ credit supply towards large multinational corporations. Instead, increased competition and the improvement of subsidiaries’ lending technologies have led foreign banks to gradually expand into the SME and retail markets. Second, it is demonstrated that local bank affiliates are strongly influenced by the capital allocation and credit steering mechanisms of the parent bank.foreign banks, transition economies, small-business lending, internal capital markets

Foreign Banks in Transition Economies: Small Business Lending and Internal Capital Markets

On the basis of focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltics, we analyse foreign banks’ small business lending and internal capital markets. This allows us to complement the standard empirical literature, which has difficulty in measuring important variables such as lending technologies and capital allocation systems. We find that the acquisition of local banks by foreign banks has not led to a persistent bias in these banks’ credit supply towards large multinational corporations. Instead, increased competition and the improvement of subsidiaries’ lending technologies have led foreign banks to gradually expand into the SME and retail markets. Second, we show that local bank affiliates are strongly influenced by the capital allocation and credit steering mechanisms of the parent bank. The credit growth of subsidiaries therefore potentially depends on the financial health of the foreign based parent bank.foreign banks, transition economies, small business lending, internal capital markets

Housing Prices, Bank Lending, and Monetary Policy

In order to gain more insight into the relationship between housing prices and mortgage lending, we estimate models for both the Dutch housing and the mortgage market. The empirical analysis presented in this paper offers support for the hypothesis that in the Netherlands housing prices and mortgage lending are interdependent. According to our model, housing prices were influenced by changes in bank lending criteria during the estimation period, even when we control for variables such as disposable household income, mortgage interest rate, demographic developments and the housing stock. Mortgage lending was found to be dependent on housing prices as well as disposable income. Our analysis further suggests that in the short run housing prices can deviate substantially from their long-run equilibrium value.housing prices, mortgage market, monetary policy

Foreign currency lending in emerging Europe: bank-level evidence

Based on survey data from 193 banks in 20 countries we provide the first bank-level analysis of the determinants of foreign currency (FX) lending in emerging Europe. We find that FX lending by all banks, regardless of their ownership structure, is strongly determined by the macroeconomic environment. We find no evidence of foreign banks ‘pushing’ FX loans indiscriminately because of easier access to wholesale funding in foreign currency. In fact, while foreign banks do lend more in FX to corporate clients, they do not do so to retail clients. We also find that after a take-over by a foreign bank, the acquired bank does not increase its FX lending any faster than a bank which remains in domestic hands.

Financial collateral and capital adequacy requirements

To what extent can the use of financial collateral as a credit risk mitigant affect capital adequacy requirements? This article considers the current and future capital adequacy regimes applying to credit institutions as they relate to collateralised transactions.collateral capital requirements banks

International Shock Transmission after the Lehman Brothers Collapse. Evidence from Syndicated Lending

After Lehman Brothers filed for bankruptcy in September 2008, cross-border bank lending contracted sharply. To explain the severity and variation in this contraction, we analyze detailed data on cross-border syndicated lending by 75 banks to 59 countries. We find that banks that had to write down sub-prime assets, refinance large amounts of long-term debt, and experienced sharp declines in their market-to-book ratio, transmitted these shocks across borders by curtailing their lending abroad. While shocked banks differentiated between countries in much the same way as less constrained banks, they restricted their lending more to small borrowers.Cross-border lending; bank-funding shocks; crisis transmission

Foreign Bank Penetration and Private Sector Credit in Central and Eastern Europe

We analyse foreign bank penetration in Central and Eastern Europe (CEE)and its influence on private sector credit,taking into account both cross-border credit and credit by foreign bank subsidiaries. By combining BIS and BankScope data into a unique database we make a clear distinction between these credit categories.We show that the relative importance of foreign bank subsidiaries has increased considerably during recent years.However,in Hungary and Poland foreign banks were also important during the first transition years,as they provided substantial amounts of cross-border credit.We do not find evidence of foreign banks deserting CEE during financial crises or economic downturns.Although cross-border credit did decrease during some periods,foreign banks expanded the credit supply of their subsidiaries simultaneously.This may be an important consideration for (transition)countries that still have to decide whether to open up their markets to foreign bank subsidiaries.foreign banks,cross-border credit,transition economies

The crisis as a wake-up call: do banks tighten screening and monitoring during a financial crisis?

Recent developments and theoretical work on the transition economies has emphasised the importance of internal bargaining and incentives. This paper constitutes the first attempt to systematise the large and growing body of case studies of enterprise restructuring in Poland, Hungary, Slovakia, Russia and the Czech Republic. We begin from a framework in which the incentives and constraints on managers are crucial for the success of transforming enterprises into value maximising firms. The forms of, and the constraints on, active behaviour are examined for each enterprise across the dimensions of internal organisation, product and labour markets and investment. There is a huge variety in the quality of the evidence and in the experiences documented. Although we find widespread evidence of enterprise managers reacting to the post-reform environment, examples of deep restructuring are rare. Managers are hamstrung by weak incentives and increasing employee opposition, as well as by the uneven development of social and market infrastructure external to the enterprise. Low incentives arise from the absence of a managerial labour market, monopoly power and the large component of idiosyncratic knowledge possessed by incumbents. Opposition is based on the high costs of job loss. A characteristic feature of the transition economies is the ability of employees to veto restructuring and the opposition of labour appears likely to increase as unemployment rates and durations grow. Cases are described where the passage of restructuring measures has been facilitated by the willingness of the state to provide compensation to the ‘losers’. The examination of pre-privatisation behaviour suggests that the pace and depth of restructuring would increase after privatisation only when privatisation clearly transforms the incentives and constraints facing managers. The limited evidence on post- privatisation restructuring surveyed here suggests that foreign ownership of a former state-owned enterprise is the exception in which privatisation produces a marked change in behaviour. The role of product market power runs through the survey. Some enterprises use profits as a shield to avoid painful change, others have actively sought to build dominant positions. Aggregate data is presented which raises the possibility that the pattern of restructuring is being distorted by the uneven distribution of monopoly power across sectors. In our conclusions, we suggest ways in which future enterprise-level research could be improved to shed more light on the pattern of restructuring and to facilitate safer policy advice. From a policy perspective, we stress the complementarity between different reforms. The focus on the incentives and constraints facing enterprise managers highlights the limitations to a strategy which relies on privatisation to raise efficiency. The state must play a role in facilitating labour shedding and internal reorganisation of enterprises through providing finance for compensation, promoting the provision of social services outside the structure of enterprises and fostering the creation of new jobs. The hardening ahs promoted adjustment but over-tight budgetary policies may offset this, slowing the arte of new job creation ad heightening uncertainty about the prospects of enterprises under restructuring.