Does Government Intervention Affect Banking Globalization?

40 Pages Posted: 15 Feb 2016 Last revised: 25 Jul 2021

See all articles by Anya Kleymenova

Anya Kleymenova

Board of Governors of the Federal Reserve System

Andrew Kenan Rose

University of California - Haas School of Business; NUS Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Tomasz Wieladek

Bank of England

Multiple version iconThere are 2 versions of this paper

Date Written: February 2016

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.

Suggested Citation

Kleymenova, Anya V. and Rose, Andrew Kenan and Wieladek, Tomasz, Does Government Intervention Affect Banking Globalization? (February 2016). NBER Working Paper No. w21981, Available at SSRN: https://ssrn.com/abstract=2732458

Anya V. Kleymenova (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Andrew Kenan Rose

University of California - Haas School of Business ( email )

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Tomasz Wieladek

Bank of England ( email )

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