IDEAS home Printed from https://ideas.repec.org/a/spr/jecfin/v46y2022i4d10.1007_s12197-022-09593-9.html
   My bibliography  Save this article

On the uncertainty-global bank linkage nexus: The moderation of crises, financial regulations, and institutional quality

Author

Listed:
  • Tien Nguyen

    (Vietnam Banking Academy)

  • Dung Phuong Hoang

    (Vietnam Banking Academy)

  • Thang Ngoc Doan

    (Vietnam Banking Academy)

Abstract

This paper investigates the effects of uncertainty on international bank linkages based on international data from 1990 to 2013. We further provide insights into this relationship by testing the moderating effects of crises, financial regulations, and institutional quality. The amount of bank pairs that connect via international syndicated lending from source to target country is used to measure the global bank linkages whereas the world uncertainty index reflects a country’s uncertainty. We control the unobserved factors by using a full set of fixed effects, including year, source, target-country, and country-pair fixed effects. Moreover, we incorporate the source country-year fixed effect that reflects any international and country-level shocks affecting bank loan supply from a common source country to disentangle the effect of uncertainty shocks in the host country. The empirical results show that the uncertainty in target countries dampens the bank linkages. The effect of uncertainty becomes pronounced when the target countries have crises, stricter financial regulations, or weaker institutions. Our main results are robust when using alternative measures of uncertainty and when controlling for endogeneity problems.

Suggested Citation

  • Tien Nguyen & Dung Phuong Hoang & Thang Ngoc Doan, 2022. "On the uncertainty-global bank linkage nexus: The moderation of crises, financial regulations, and institutional quality," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(4), pages 623-645, October.
    • Handle: RePEc:spr:jecfin:v:46:y:2022:i:4:d:10.1007_s12197-022-09593-9
    DOI: 10.1007/s12197-022-09593-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s12197-022-09593-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s12197-022-09593-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Paul Hubert, 2015. "Do Central Bank Forecasts Influence Private Agents? Forecasting Performance versus Signals," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(4), pages 771-789, June.
    2. repec:grz:wpaper:2012-03 is not listed on IDEAS
    3. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    4. Dubra, Juan & Maccheroni, Fabio & Ok, Efe A., 2004. "Expected utility theory without the completeness axiom," Journal of Economic Theory, Elsevier, vol. 115(1), pages 118-133, March.
    5. Scott R Baker & Nicholas Bloom & Stephen J Terry, 2024. "Using Disasters to Estimate the Impact of Uncertainty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(2), pages 720-747.
    6. Borio, Claudio & Zhu, Haibin, 2012. "Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism?," Journal of Financial Stability, Elsevier, vol. 8(4), pages 236-251.
    7. Baker, Scott R. & Bloom, Nicholas, 2013. "Does uncertainty reduce growth? Using disasters as natural experiments," LSE Research Online Documents on Economics 121906, London School of Economics and Political Science, LSE Library.
    8. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, vol. 87(2), pages 205-215.
    9. Courtenay, Roger & Clare, Andrew, 2001. "What can we learn about monetary policy transparency from financial market data?," Discussion Paper Series 1: Economic Studies 2001,06, Deutsche Bundesbank.
    10. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    11. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    12. Buch, Claudia M. & Lipponer, Alexander, 2007. "FDI versus exports: Evidence from German banks," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 805-826, March.
    13. Papaioannou, Elias, 2009. "What drives international financial flows? Politics, institutions and other determinants," Journal of Development Economics, Elsevier, vol. 88(2), pages 269-281, March.
    14. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    15. Choi, Sangyup & Furceri, Davide, 2019. "Uncertainty and cross-border banking flows," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 260-274.
    16. Nuno Coimbra & Hélène Rey, 2024. "Financial Cycles with Heterogeneous Intermediaries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(2), pages 817-857.
    17. Nick Bloom & Stephen Bond & John Van Reenen, 2007. "Uncertainty and Investment Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(2), pages 391-415.
    18. Avdjiev, Stefan & Aysun, Uluc & Hepp, Ralf, 2019. "What drives local lending by global banks?," Journal of International Money and Finance, Elsevier, vol. 90(C), pages 54-75.
    19. Albrizio, Silvia & Choi, Sangyup & Furceri, Davide & Yoon, Chansik, 2020. "International bank lending channel of monetary policy," Journal of International Money and Finance, Elsevier, vol. 102(C).
    20. Bremus, Franziska & Fratzscher, Marcel, 2015. "Drivers of structural change in cross-border banking since the global financial crisis," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 32-59.
    21. Choi, Sangyup & Furceri, Davide & Huang, Yi & Loungani, Prakash, 2018. "Aggregate uncertainty and sectoral productivity growth: The role of credit constraints," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 314-330.
    22. Douglas W. Diamond & Raghuram G. Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," American Economic Review, American Economic Association, vol. 99(2), pages 606-610, May.
    23. Ralph De Haas & Neeltje Van Horen, 2013. "Running for the Exit? International Bank Lending During a Financial Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 26(1), pages 244-285.
    24. Kleimeier, Stefanie & Sander, Harald & Heuchemer, Sylvia, 2013. "Financial crises and cross-border banking: New evidence," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 884-915.
    25. Aysun, Uluc & Hepp, Ralf, 2016. "The determinants of global bank lending: Evidence from bilateral cross-country data," Journal of Banking & Finance, Elsevier, vol. 66(C), pages 35-52.
    26. Caballero, Julian & Candelaria, Christopher & Hale, Galina, 2018. "Bank linkages and international trade," Journal of International Economics, Elsevier, vol. 115(C), pages 30-47.
    27. Ranaldo, Angelo & Rossi, Enzo, 2010. "The reaction of asset markets to Swiss National Bank communication," Journal of International Money and Finance, Elsevier, vol. 29(3), pages 486-503, April.
    28. Joel F. Houston & Chen Lin & Yue Ma, 2012. "Regulatory Arbitrage and International Bank Flows," Journal of Finance, American Finance Association, vol. 67(5), pages 1845-1895, October.
    29. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    30. Greenwald, Bruce & Stiglitz, Joseph E & Weiss, Andrew, 1984. "Informational Imperfections in the Capital Market and Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 74(2), pages 194-199, May.
    31. Mr. Philip R. Lane & Mr. Gian M Milesi-Ferretti, 2017. "International Financial Integration in the Aftermath of the Global Financial Crisis," IMF Working Papers 2017/115, International Monetary Fund.
    32. Claudia M. Buch & Sandra Eickmeier & Esteban Prieto, 2014. "Macroeconomic Factors and Microlevel Bank Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(4), pages 715-751, June.
    33. Dräger, Lena & Lamla, Michael J. & Pfajfar, Damjan, 2016. "Are survey expectations theory-consistent? The role of central bank communication and news," European Economic Review, Elsevier, vol. 85(C), pages 84-111.
    34. Cornelia Kerl & Friederike Niepmann, 2015. "What Determines the Composition of International Bank Flows?†," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(4), pages 792-829, November.
    35. Lorenz Emter & Martin Schmitz & Marcel Tirpák, 2019. "Cross-border banking in the EU since the crisis: What is driving the great retrenchment?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(2), pages 287-326, May.
    36. Paul Hubert, 2011. "Do central banks forecast influence private agents ? Forecasting performance vs. signals," Documents de Travail de l'OFCE 2011-20, Observatoire Francais des Conjonctures Economiques (OFCE).
    37. Eichler, Stefan & Littke, Helge C.N. & Tonzer, Lena, 2017. "Central bank transparency and cross-border banking," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 1-30.
    38. Stijn Claessens & Neeltje Van Horen, 2014. "Foreign Banks: Trends and Impact," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(s1), pages 295-326, February.
    39. Silvia Miranda-Agrippino & Hélène Rey, 2020. "U.S. Monetary Policy and the Global Financial Cycle," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(6), pages 2754-2776.
    40. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
    41. Nautz, Dieter & Schmidt, Sandra, 2009. "Monetary policy implementation and the federal funds rate," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1274-1284, July.
    42. Anginer, Deniz & Demirguc-Kunt, Asli & Zhu, Min, 2012. "How does bank competition affect systemic stability ?," Policy Research Working Paper Series 5981, The World Bank.
    43. Bansal, Ravi & Lundblad, Christian, 2002. "Market efficiency, asset returns, and the size of the risk premium in global equity markets," Journal of Econometrics, Elsevier, vol. 109(2), pages 195-237, August.
    44. Bernal, Oscar & Gnabo, Jean-Yves & Guilmin, Grégory, 2016. "Economic policy uncertainty and risk spillovers in the Eurozone," Journal of International Money and Finance, Elsevier, vol. 65(C), pages 24-45.
    45. Juan Dubra & Fabio Maccheroni & Efe A. Ok, 2004. "Expected Utility Without the Completeness Axiom," Yale School of Management Working Papers ysm404, Yale School of Management.
    46. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    47. David Llewellyn, 2000. "Some Lessons for Regulation from Recent Bank Crises," Open Economies Review, Springer, vol. 11(1), pages 69-109, August.
    48. Julian Donaubauer & Eric Neumayer & Peter Nunnenkamp, 2020. "Financial market development in host and source countries and their effects on bilateral foreign direct investment," The World Economy, Wiley Blackwell, vol. 43(3), pages 534-556, March.
    49. Poelhekke, Steven, 2015. "Do global banks facilitate foreign direct investment?," European Economic Review, Elsevier, vol. 76(C), pages 25-46.
    50. F. H. Knight, 1921. "Cost of Production and Price over Long and Short Periods," Journal of Political Economy, University of Chicago Press, vol. 29(4), pages 304-304.
    51. repec:bla:jfinan:v:59:y:2004:i:4:p:1481-1509 is not listed on IDEAS
    52. Leduc, Sylvain & Liu, Zheng, 2016. "Uncertainty shocks are aggregate demand shocks," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 20-35.
    53. Torsten Ehlers & Philip D Wooldridge, 2015. "Channels and determinants of foreign bank lending," BIS Papers chapters, in: Bank for International Settlements (ed.), Cross-border Financial Linkages: Challenges for Monetary Policy and Financial Stability, volume 82, pages 29-68, Bank for International Settlements.
    54. Biswas, Sonny & Zhai, Wei, 2021. "Economic policy uncertainty and cross-border lending," Journal of Corporate Finance, Elsevier, vol. 67(C).
    55. James W. Angell, 1960. "Uncertainty, Likelihoods and Investment Decisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 74(1), pages 1-28.
    56. Demirguc, Asli & Detragiache, Enrica, 2000. "Monitoring Banking Sector Fragility: A Multivariate Logit Approach," The World Bank Economic Review, World Bank, vol. 14(2), pages 287-307, May.
    57. Barrell, Ray & Nahhas, Abdulkader, 2020. "The role of lender country factors in cross border bank lending," International Review of Financial Analysis, Elsevier, vol. 71(C).
    58. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
    59. Wang, Yabin, 2018. "Fickle capital flows and retrenchment: Evidence from bilateral banking data," Journal of International Money and Finance, Elsevier, vol. 87(C), pages 1-21.
    60. Hasseltoft, Henrik, 2012. "Stocks, Bonds, and Long-Run Consumption Risks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(2), pages 309-332, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eichler, Stefan & Littke, Helge C.N. & Tonzer, Lena, 2017. "Central bank transparency and cross-border banking," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 1-30.
    2. Barrell, Ray & Nahhas, Abdulkader, 2020. "The role of lender country factors in cross border bank lending," International Review of Financial Analysis, Elsevier, vol. 71(C).
    3. Wang, Yabin, 2018. "Fickle capital flows and retrenchment: Evidence from bilateral banking data," Journal of International Money and Finance, Elsevier, vol. 87(C), pages 1-21.
    4. Albrizio, Silvia & Choi, Sangyup & Furceri, Davide & Yoon, Chansik, 2020. "International bank lending channel of monetary policy," Journal of International Money and Finance, Elsevier, vol. 102(C).
    5. Eichler, Stefan & Littke, Helge C. N., 2017. "Central bank transparency and the volatility of exchange rates," IWH Discussion Papers 22/2017, Halle Institute for Economic Research (IWH).
    6. Eichler, Stefan & Littke, Helge C.N., 2018. "Central bank transparency and the volatility of exchange rates," Journal of International Money and Finance, Elsevier, vol. 89(C), pages 23-49.
    7. N. Bloom, 2016. "Fluctuations in uncertainty," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 4.
    8. Choi, Sangyup & Furceri, Davide, 2019. "Uncertainty and cross-border banking flows," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 260-274.
    9. Sangyup Choi & Davide Furceri & Chansik Yoon, 2019. "Policy Uncertainty and FDI Flows: The Role of Institutional Quality and Financial Development," Working papers 2019rwp-144, Yonsei University, Yonsei Economics Research Institute.
    10. Al-Thaqeb, Saud Asaad & Algharabali, Barrak Ghanim, 2019. "Economic policy uncertainty: A literature review," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    11. Josué Diwambuena & Jean-Paul K. Tsasa, 2021. "The Real Effects of Uncertainty Shocks: New Evidence from Linear and Nonlinear SVAR Models," BEMPS - Bozen Economics & Management Paper Series BEMPS87, Faculty of Economics and Management at the Free University of Bozen.
    12. Siranova, Maria & Tiruneh, Menbere Workie & Fisera, Boris, 2021. "Creating the illicit capital flows network in Europe – Do the net errors and omissions follow an economic pattern?," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 955-973.
    13. Wu, Ji & Yao, Yao & Chen, Minghua & Jeon, Bang Nam, 2020. "Economic uncertainty and bank risk: Evidence from emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 68(C).
    14. Ahmed Ali & Granberg Mark & Troster Victor & Uddin Gazi Salah, 2022. "Asymmetric dynamics between uncertainty and unemployment flows in the United States," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 26(1), pages 155-172, February.
    15. Bhanu Pratap & Nalin Priyaranjan, 2023. "Macroeconomic effects of uncertainty: a Google trends-based analysis for India," Empirical Economics, Springer, vol. 65(4), pages 1599-1625, October.
    16. Gabriel P. Mathy, 2020. "How much did uncertainty shocks matter in the Great Depression?," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 14(2), pages 283-323, May.
    17. Pagliacci, Carolina, 2021. "The supply and demand-side impacts of uncertainty shocks. Evidence on advanced and emerging economies," MPRA Paper 108739, University Library of Munich, Germany.
    18. Choi, Sangyup & Furceri, Davide & Huang, Yi & Loungani, Prakash, 2018. "Aggregate uncertainty and sectoral productivity growth: The role of credit constraints," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 314-330.
    19. Boyan Jovanovic & Sai Ma, 2022. "Uncertainty and Growth Disasters," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 33-64, April.
    20. Costantini, Mauro & Sousa, Ricardo M., 2022. "What uncertainty does to euro area sovereign bond markets: Flight to safety and flight to quality," Journal of International Money and Finance, Elsevier, vol. 122(C).

    More about this item

    Keywords

    Financial network; International banking; Uncertainty; Financial regulations; Institutional quality;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jecfin:v:46:y:2022:i:4:d:10.1007_s12197-022-09593-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.