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Domestic lending and the pandemic: How does banks’ exposure to COVID-19 abroad affect their lending in the United States?

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  • Temesvary, Judit
  • Wei, Andrew

Abstract

Shortly after the pandemic began, globally active U.S. banks cut their term lending to U.S. businesses. Combining three granular bank regulatory datasets, we examine how U.S. banks’ exposure to COVID-related restrictions abroad contributed to these lending cuts. Even after controlling for changes in firms’ credit demand through extensive industry*state*quarter fixed effects, we find strong evidence that U.S. banks with higher foreign COVID exposures reduced their corporate lending, and tightened terms on such loans, significantly more. Banks’ increased risk perception, balance sheet liquidity effects due to higher foreign credit line drawdowns, and higher losses on corporate loans abroad served as mechanisms.

Suggested Citation

  • Temesvary, Judit & Wei, Andrew, 2024. "Domestic lending and the pandemic: How does banks’ exposure to COVID-19 abroad affect their lending in the United States?," Journal of International Money and Finance, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:jimfin:v:143:y:2024:i:c:s026156062400041x
    DOI: 10.1016/j.jimonfin.2024.103054
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    More about this item

    Keywords

    Cross-border spillbacks; Bank lending; Bank capital; Bank balance sheet liquidity;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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