The International Transmission of Bank Liquidity Shocks: Evidence from an Emerging Market



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    • Philipp Schnabl is at the Stern School of Business, New York University. I am deeply grateful to my advisors Jeremy Stein, Andrei Shleifer, Sendhil Mullainathan, and Edward Glaeser for their support and guidance. I am deeply indebted to an anonymous referee for numerous comments that significantly improved the paper, as well as an Associate Editor and the Editor, Cam Harvey. I thank Viral Acharya, Ashwini Agrawal, Marianne Bertrand, Edward Glaeser, Luigi Guiso, Jens Hilscher, Victoria Ivashina, Marcin Kacperczyk, Asim Khwaja, Alexander Ljungqvist, Deborah Lucas, Thomas Mertens, Atif Mian, Holger Mueller, Anthony Saunders, David Scharfstein, Antoinette Schoar, and Eric Werker for helpful comments and suggestions. This paper also benefited greatly from comments of seminar participants at Chicago Booth School of Business, Columbia Business School, Duke University (Fuqua), European University Institute, Federal Reserve Board, Harvard University, Inter-American Development Bank, International Monetary Fund, London Business School, London School of Economics, New York University (Stern), Northwestern University (Kellogg), MIT (Sloan), Stanford University, University of Pennsylvania (Wharton), and the 2008 Conference on Bank Structure. I am grateful to the Superintendencia de Banca, Seguros y AFP (SBS) for providing the data in this paper and I thank Diego Cisneros, Jorge Mogrovejo, Javier Poggi, Jorge Olcese, Mitchell Canta, and especially Adriana Valenzuela for clarifying many data questions. The results in this paper do not necessarily reflect the views of SBS. All errors are my own. The paper was previously circulated as “Financial Globalization and the Transmission of Credit Supply Shocks: Evidence from an Emerging Market.”


I exploit the 1998 Russian default as a negative liquidity shock to international banks and analyze its transmission to Peru. I find that after the shock international banks reduce bank-to-bank lending to Peruvian banks and Peruvian banks reduce lending to Peruvian firms. The effect is strongest for domestically owned banks that borrow internationally, intermediate for foreign-owned banks, and weakest for locally funded banks. I control for credit demand by examining firms that borrow from several banks. These results suggest that international banks transmit liquidity shocks across countries and that negative liquidity shocks reduce bank lending in affected countries.