DP10139 Global Bank Lending Flows: Identifying the Flight Home Effect

Author(s): Caroline Van Rijckeghem, Beatrice Weder di Mauro
Publication Date: September 2014
Keyword(s): deglobalization, financial protectionism, international banking system
JEL(s): E52, F34, G21
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10139

We propose a general specification to estimate the strength of the flight home effect, provide a decomposition into lender and recipient effects and country-by country measures. Flight home occurs when the change in domestic credit extended by domestic banks cannot be accounted for by recipient or lender effects. Based on break-adjusted BIS data, we find evidence of flight home for almost all banking systems with the notable exception of Canada, the US and Japan. In periods of relative calm, reversals of the home bias are small. The result is cumulative renationalization of bank lending.