John Bonin, the Chester D. Hubbard Professor of Economics and Social Science, and his former student Dana Louie ’15, are authors of a new paper published in Journal of Comparative Economics titled, “Did foreign banks stay committed to emerging Europe during recent financial crises?”
In the paper, Bonin and Louie investigate the behavior of foreign banks with respect to real loan growth during times of financial crisis for a set of countries where foreign banks dominate the banking sectors. The paper focuses on eight countries that are the most developed in emerging Europe and the behavior of two types of banks: The Big 6 European multinational banks (MNBs) and all other-foreign controlled banks. The results show that bank lending was impacted adversely during recent financial crises, but the two types of banks behaved differently. The Big 6 banks’ lending behavior was similar to domestic banks supporting the notion that these countries are treated as a “second home market” by these European MNBs. However, the other foreign banks in the region were involved in fueling the credit boom, but then decreased their lending aggressively during the crisis periods. The results suggest that both innovations matter for studying bank behavior during crisis periods in the region and, by extension, to other small countries in which banking sectors are dominated by foreign financial institutions having different business models.
“I am particularly proud of this collaborative publication because it does not stem from a student’s honors thesis, but rather from work that began with the Quantitative Analysis Center summer program and that Dana and I continued throughout her senior year in addition to her regular coursework,” Bonin said.
The paper is available online and will appear in a forthcoming hardcopy issue of the journal.