Judit Temesvary

The performance effects of gender diversity on bank boards

Previous literature has shown mixed results on the role of female participation on bank boards and bank performance: some papers find that more women on boards enhance financial performance, while others find negative or no effects. Applying instrumental variables methods to data on approximately 90 U.S. bank holding companies over the 1999–2015 period, we argue that these inconclusive results are due to the fact that there is a non-linear, U-shaped relationship between gender diversity on boards and various measures of bank performance: female participation has a positive effect once a threshold level of gender diversity is achieved. Furthermore, this positive effect is only observed in better capitalized banks. Our results suggest that continuing the voluntary expansion of gender diversity on bank boards will be value-enhancing, provided that they are well capitalized.

The Role of Regulatory Arbitrage in U.S. Banks’ International Lending Flows: Bank-Level Evidence

This paper examines how cross-border differences in the stringency of bank regulations affect U.S. banks’ international activities. The analysis relies on a unique bank-level dataset on the globally most active U.S. banks’ balance sheet as well as their cross-border, foreign affiliate lending and foreign market entry choices in 82 foreign countries in the 2003-2013 period. Results show that U.S. banks are significantly more likely to enter foreign markets with relatively laxer bank capital and disclosure requirements, and exit foreign markets with relatively stricter deposit insurance schemes and more restrictions on activities. Banks substitute away from foreign affiliate lending (via subsidiaries in the foreign country) towards cross-border lending (originating from the U.S.) in foreign countries with more powerful and independent bank regulators and limits on activities.

The Transmission of Foreign Monetary Policy Shocks into the United States through Foreign Banks

This paper examines the transmission of foreign monetary policy shocks into the United States through the activities of foreign banks in the US. Using a rarely studied bank-level dataset of foreign banks’ activities in the US over the 1997-2014 period, the paper examines how changes in monetary policy in banks’ home countries affect internal capital flows between the US affiliate and its head office abroad. Furthermore, the paper explores the extent to which these foreign monetary policy-induced internal capital flows affect the lending of foreign banks in the US. Results show that monetary tightening in banks’ home countries causes them to withdraw funding from their US-based affiliates both in the pre- and post-crisis periods, but these funding withdrawals’ effects on lending are only detectable in the pre-crisis period. The transmission of foreign monetary policy is stronger into the lending of US-based foreign branches and agencies than into the lending of FDIC-insured foreign banks which are chartered as national and state banks.

Foreign Lending, Local Lending, and Economic Growth

Recent research has shown that there is significant cross-country heterogeneity in the previously well-established relationship of finance and long-run growth. We explore this heterogeneity by estimating finite mixture models and by considering the effects of foreign and domestic lending separately. We find that bank lending does not have the same effect on growth or savings in all countries. Country characteristics such as the extent of stock market development, the degree of rule of law, and even the development of the banking sector itself vary considerably across countries and affect the productivity of bank lending in encouraging growth and savings. Furthermore, the effect of bank finance on growth and the effect of foreign bank involvement depend on 1) how well developed the banking sector is, and 2) if foreign banks are involved via loans made by affiliates located within the country or via cross-border loans. The experience of lenders with a presence in the country is important, but only once a threshold level of financial sector development is reached. In countries with underdeveloped banking sectors, the influence of foreign-owned lenders relative to locally-owned banks can be detrimental to growth.

Can Macroprudential Measures Make Cross-Border Lending More Resilient? Lessons from the Taper Tantrum

We study the effect of macroprudential measures on cross-border lending during the taper tantrum, which saw a strong slowdown of cross-border bank lending to some jurisdictions. We use a novel dataset combining the BIS Stage 1 enhanced banking statistics on bilateral cross-border lending flows with the IBRN?s macroprudential database. Our results suggest that macroprudential measures implemented in borrowers? host countries prior to the taper tantrum significantly reduced the negative effect of the tantrum on cross-border lending growth. The shock-mitigating effect of host country macroprudential rules are present both in lending to banks and non-banks, and are strongest for lending flows to borrowers in advanced economies and to the non-bank sector in general. Source (lending) banking system measures do not affect bilateral lending flows, nor do they enhance the effect of host country macroprudential measures. Our results imply that policymakers may consider applying macroprudential tools to mitigate international shock transmission through cross-border bank lending.

The Currency Dimension of the Bank Lending Channel in International Monetary Transmission

We investigate how the use of a currency transmits monetary policy shocks in the global banking system. We use newly available unique data on the bilateral cross-border lending flows of 27 BIS-reporting lending banking systems to over 50 borrowing countries, broken down by currency denomination (USD, EUR and JPY). We have three main findings. First, monetary shocks in a currency significantly affect cross-border lending flows in that currency, even when neither the lending banking system nor the borrowing country uses that currency as their own. Second, this transmission works mainly through lending to non-banks. Third, this currency dimension of the bank lending channel works similarly across the three currencies suggesting that the cross-border bank lending channel of liquidity shock transmission may not be unique to lending in USD.