Foreign bank Lending Behaviour during 3 US Recessions

Abstract

We study whether foreign banks engaged in countercyclical lending in the United States during the 1990�1991, 2001, and 2007�2009 recessions. Aggregate lending by foreign banks increased in the 1990�91 recession and by domestic banks in the 2001 recession. Controlling for local GDP and unemployment, we show countercyclical lending by foreign branches in the 1990 recession and by foreign subsidiaries in the 2001 recession. In the 2008 recession, foreign branches and subsidiaries exhibited neither countercyclical nor procyclical lending. We conclude that foreign banks like domestic banks respond to local economic conditions; the foreign ownership is not a factor.