Working Paper: NBER ID: w21981
Authors: Anya Kleymenova; Andrew K. Rose; Tomasz Wieladek
Abstract: Using data from British and American banks, we provide empirical evidence that government intervention affects banking globalization along three dimensions: depth, breadth and persistence. We examine depth by studying whether a bank’s preference for domestic, as opposed to external, lending (funding) changes when it is subjected to a large public intervention, such as bank nationalization. Our results suggest that, following nationalization, non-British banks allocate their lending away from the UK and increase their external funding. Second, we find that nationalized banks from the same country tend to have portfolios of foreign assets that are spread across countries in a way that is far more similar than either private banks from the same country or nationalized banks from different countries, consistent with an impact on the breadth of globalization. Third, we study the Troubled Asset Relief Program (TARP) to examine the persistence of the effect of large government interventions. We find weak evidence that upon entry into the TARP, foreign lending declines but domestic does not. This effect is observable at the aggregate level, and seems to disappear upon TARP exit. Collectively, this evidence suggests that large government interventions affect the depth and breadth of banking globalization, but may not persist after public interventions are unwound.
Keywords: banking globalization; government intervention; financial protectionism
JEL Codes: F36; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government intervention (O25) | Banking globalization (F65) |
| Nationalization of banks (G28) | Allocation of lending away from the UK (F65) |
| Nationalization of banks (G28) | Increase in external funding (O36) |
| Nationalized banks from the same country (F65) | Portfolios of foreign assets converge (G15) |
| Entry into TARP (G28) | Decline in foreign lending (F65) |
| Entry into TARP (G28) | Domestic lending does not decline (G21) |
| Government intervention (O25) | Persistence of effects (C41) |