The International Transmission of Shocks through the Lens of Foreign Banks in Hong Kong

Authors

Kelvin Ho

Cho-hoi Hui

Eric T.C. Wong

Download PDF
(600 KB)

2014-25 | January 1, 2023

This paper studies the international transmission of shocks through the foreign bank lending channel. We find evidence that foreign banks whose parent is headquartered in a country experiencing a financial crisis significantly reduce their lending in the host country. Our results are based on studying foreign banks in Hong Kong during the 2008 US financial crisis and the 2010 European sovereign debt crisis. However, we do not find an overall decline in bank lending during the foreign crisis. Banks from crisis country with a higher deposit ratio reduced lending less. Banks from crisis country with preference for liquidity reduced lending more, consistent with liquidity hoarding during crisis.

About the Authors
Simon Kwan is a senior research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Simon Kwan