Is Foreign Bank Lending in the U.S. Countercyclical? Evidence from Three U.S. Recessions

We study whether foreign banks increased or decreased lending in the United States during the 1990-1991, 2001, and 2007-2009 recessions. Using a matched sample of foreign banks paired with domestic banks, univariate tests show that commercial and industrial loans by foreign banks increased in the 1990-1991 recession, decreased in the 2001 recession, and marginally increased in the 2007-2009 recession. Since recessions have differential impacts in an economy, we tested the lending behavior using granular data at the local metropolitan statistical area (MSA) level. Multivariate test results show that foreign branches engaged in countercyclical lending in the 1990 and 2001 recessions and foreign subsidiaries in the 2008 recession by lending in MSAs where GDP was falling or unemployment increasing. We conclude foreign banks continue to play a positive role in the American economy.