Is US Bank Lending Sensitive to Exchange Rates? A Panel Data Investigation

Authors

Michael R. Jonas, University of San FranciscoFollow

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

Recommended Citation

Jonas, M. (2014) Is US Bank Lending Sensitive to Exchange Rates? A Panel Data Investigation. Modern Economy, 5, 848-863. doi: 10.4236/me.2014.58078.