Is US Bank Lending Sensitive to Exchange Rates? A Panel Data Investigation


The goal of this paper is to examine the sensitivity of US bank lending to movements in the exchange rate. Using a panel of quarterly bank-level balance sheet observations, I show that there exists significant and meaningful exchange rate sensitivity of cross-border lending activity and total domestic loans. This relationship operates through traditional net export channels, as well as mechanisms specific to banks engaged in international lending. Further, I show that exchange rate innovations represent a source of long run lending volatility equivalent to monetary policy shocks for small banks. Lastly, exchange rate movements are shown to be associated with a four-fold increase in growth of non-performing loans for small banks, providing direct evidence of transfer risk for cross-border banks.

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Jonas, M. (2014) Is US Bank Lending Sensitive to Exchange Rates? A Panel Data Investigation. Modern Economy, 5, 848-863. doi: 10.4236/me.2014.58078.

Conflicts of Interest

The authors declare no conflicts of interest.


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