ME  Vol.5 No.8 , July 2014
Is US Bank Lending Sensitive to Exchange Rates? A Panel Data Investigation
Author(s) Michael R. Jonas
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.


Cite this paper
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.
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