Document Type

Article

Publication Date

2014

Abstract

The goal of this paper is to examine the sensitivity of US bank lending to movements in the exchange rate. Using a panel of quarterly bank-level balance sheet observations, I show that there exists significant and meaningful exchange rate sensitivity of cross-border lending activity and total domestic loans. This relationship operates through traditional net export channels, as well as mechanisms specific to banks engaged in international lending. Further, I show that exchange rate innovations represent a source of long run lending volatility equivalent to monetary policy shocks for small banks. Lastly, exchange rate movements are shown to be associated with a four-fold increase in growth of non-performing loans for small banks, providing direct evidence of transfer risk for cross-border banks.

Comments

Copyright © 2014 by author and Scientific Research Publishing Inc. This work is licensed under the Creative Commons Attribution International License (CC BY). http://creativecommons.org/licenses/by/4.0/ Article available at: http://dx.doi.org/10.4236/me.2014.58078

DOI

10.4236/me.2014.58078

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