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
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