Norges Bank

Working Paper

Cross-Border Bank Flows, Regional Household Credit Booms and Bank Risk-Taking

Dominik Boddin, Daniel te Kaat and Kasper Roszbach
Working Paper


This paper provides novel micro-level evidence that cross-border bank flows are important for households’ access to credit not only in emerging markets but also in advanced economies and may drive local credit credit booms that increase banking sector risk. We study the impact of the influx of cross-border bank funding that followed the ECB’s implementation of non-conventional monetary policy in 2014-15 on lending to households. To this end we employ supervisory bank-level data, and householdlevel credit - and consumption data for Germany. Our findings show that regional banks that are more exposed to inflows of foreign capital through their reliance on non-core funding increase consumer lending to riskier, lower-income households. This rise in bank credit is predominantly funded by an inflow of deposits from non-euro area banks that leads less capitalized banks to expand their lending on the extensive margin. The improved access to consumer credit enabled lower-income households with exposed banks as their main bank relationship to increase their non-durable, consumer expenditures. Data from a group of euro area countries confirm our conclusions.

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ISSN 1502-8143 (online)

Published 6 May 2024 14:15
Published 6 May 2024 14:15