Bank dependency on foreign funding and global liquidity shocks: The importance of US monetary policy for a developing country

Research output: Contribution to journalArticlepeer-review

Abstract

We examine international spillover effects of US monetary policy on bank lending in Cambodia, using unique data about loan disbursements and the funding structures of Cambodian banks from 2013Q1 to 2019Q2. The banking sector in a developing country is likely dependent on foreign funding, while the dependency could be the source of vulnerability to international monetary and economic conditions. We empirically document that US monetary policy is likely to be transmitted to Cambodian bank lending through foreign funding. We also document that Cambodian banks change their risk-taking behavior in response to the spillover effects of US monetary policy. Furthermore, these results are robust for US monetary policy, but weak and not robust for the monetary policies of the Cambodian bank's major shareholders’ home countries, suggesting that US monetary policy should be primarily taken into account in supervising banks that are reliant on foreign funding, in addition to domestic economic conditions.

Original languageEnglish
Article number101553
JournalJournal of Asian Economics
Volume84
DOIs
Publication statusPublished - 2023 Feb

Keywords

  • Bank lending channel
  • Cambodia
  • Capital inflow
  • Developing countries
  • Dollarization
  • International monetary policy transmission

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'Bank dependency on foreign funding and global liquidity shocks: The importance of US monetary policy for a developing country'. Together they form a unique fingerprint.

Cite this