Author(s):
Carlos Cantú, Catherine Casanova, Rodrigo Alfaro, Fernando Chertman, Gerald Cisneros, Toni dos Santos, Roberto Lobato, Calixto López, Facundo Luna, David Moreno, Miguel Sarmiento and Rafael Nivin
Date:
November 2022
Abstract:
We explore the mechanism that links capital inflows from abroad with domestic bank lending. Five Latin American countries use their credit registry data to examine the changes in outstanding loans and prices that are charged by banks with different balance sheet characteristics. Our meta-analysis sums up their results. We find that high capital inflows generally induce weak banks to relax their lending standards. For the most vulnerable market segment, where weak banks lend to risky firms, only banks with low capital ratios tend to lend more and charge less during periods of high capital inflows. Financial stability concerns could arise, but they are limited as even low-capital banks are above the regulatory minimum.
Link: How Capital Inflows Translate into New Bank Lending: Tracing the Mechanism in Latin America