• University of New South Wales
  • Macquarie University
  • The University of Sydney
  • University of Technology Sydney
  • Australian National University
  • The University of Melbourne
  • Capital Markets
  • Sirca
  • Commonwealth Bank
  • KPMG
  • King & Wood Mallesons
  • Macquarie
  • Australian Government - Treasury
  • New South Wales Goverment

CIFR Research Project

Foreign Banks and Financial Shock Transmission: The Asian Experience - E046
Area of Interest: Systemic Risk, Completed Projects  Lead Institution: Australian National University
Assessment Round: August 2012  Completion Date: 2014
Project Summary

This project is the first documented attempt to use micro data to scientifically evaluate how changes in foreign banks’ lending behaviour during the 2007-2009 GFC impacted credit stability and the real economy in the Asian region. The study examined the roles played by two channels of shock transmission - bank ownership and liquidity - in transmitting the GFC to Asian loan markets.


The research found that:
• bank ownership was not a significant source of transmission; and
• liquidity was a major source of transmission.

The study shows that the link between foreign bank ownership and shock transmission is losing relevance in the Asian emerging markets. Foreign ownership per se does not seem to be a risk factor and is uncorrelated with financial volatility. Moreover, the increasing importance of local currency lending by foreign banks in Asia has made foreign bank lending more stable. While the contraction of foreign currency liquidity during the GFC was partially offset by domestic currency lending, this substitution occurred within banks, and not between banks, due to high switching costs. This evidence provides support for opening markets to foreign bank entry, and encouraging foreign banks to borrow in local markets to finance local assets and move from wholesale to retail funding. Diversifying funding sources can help mitigate the risk of contagion.


The study highlights the importance of liquidity management and the challenges facing national monetary authorities. The liquidity risks and funding conditions of banks need to be frequently monitored, and resources need to be put in place to manage liquidity tensions as they arise to avoid them magnifying and spreading.


Dr Ying Xu presenting at CIFR Symposium on Systemic Risk.

Sydney, 08 August 2013

This research has also been presented at several conferences:

Regional Integration and Financial Stability Workshop
ANU, Canberra (April 2013)
Performance of Financial Markets Symposium
Deakin University, Melbourne (June 2013)

CIFR Symposium on Systemic Risk
Sydney (August 2013)
International Conference in Finance
Vietnam (June 2014)


Team Leader:
Dr Ying Xu | Postdoctoral Research Fellow, Crawford School of Public Policy, Australia-Japan Research Centre, Australian National University
Professor Jenny Corbett | Executive Director, Australia-Japan Research Centre, ANU College of Asia and the Pacific, Australian National University
Ms Hai Anh La | PhD candidate in Economics, Crawford School of Public Policy, ANU College of Asia & the Pacific, Australian National University
Project Outputs:
  • August 2013

    Dr Ying Xu, Postdoctoral Research Fellow, Crawford School of Public Policy, Australia-Japan Research Centre, Australian National University. Watch

  • April 2014

    The rise of Asian lenders may benefit global financial stability

    East Asia Forum

    Author: Ying Xu, ANU

    It used to be the case that a small group of European and US banks dominated the international finance scene.Today, Asian banks are steadily climbing up the ranks of global lenders, while US and European banks have started to slide. From 2007–13, data from Thomson Reuters indicates that Japanese mega bank Mizuho Financial Group climbed 10 places from 17th to 7th. Read More

  • April 2014

    Foreign Banks and International Shock Transmission: Ownership Matters No More

    This paper studies the recent (2007-2009) Global Financial Crisis and its transmission through bank lending to emerging Asian economies. It highlights two channels of shock transmission identified in the literature: bank ownership and liquidity. We find that the bank ownership does not play a substantial role in the transmitting process. It is the liquidity channel measured by lending in foreign currency that is mainly responsible for the GFC transmission to the loan market in Asia, albeit the effect on the credit market is likely to be small. Read More

  • Journal Article
    May 2015

    Foreign banks and international shock transmission: does bank ownership still matter?
    Journal of International Financial Markets, Institutions and Money (2015)



The Centre for International Finance and Regulation (CIFR) represents a strategic link between academia, financial regulators, policy makers and industry, promoting financial sector vibrancy, resiliency and integrity, through leading research and education.

CIFR receives funding and support from the Commonwealth and NSW Governments, and its industry, university and research centre partners.



2011 Centre for International Finance and Regulation | Level 7, 1 O'Connell St, Sydney 2000 | Ph: +612 9931 9342 | Email info@cifr.edu.au | ABN 57 195 873 179

Privacy statements | Copyright and Disclaimer

Site by HarvestThe.Net