Narrow Results

This paper examines the factors that determine banking flows from advanced economies to emerging markets. In addition to the usual determinants of capital flows in terms of global push and local pull factors, we examine the role of bilateral factors, such as growth differentials and economic size, as well as contagion factors and measures of the depth in financial interconnectedness between lenders and borrowers. We find profound differences across regions. In particular, in spite of the severe impact of the global financial crisis, emerging Europe stands out as a more stable region. Assuming that the determinants of banking flows remain unchanged in the presence of structural changes, we use these results to explore the short-term implications of Basel III capital regulations on banking flows to emerging markets.

This chapter uncovers the effects of green banking regulation (GBR) on cross-border lending using panel data of 2,814 country pairs from 1995 to 2019. We label banking regulations as de jure and de facto ones. The former captures whether a central bank has explicit sustainability objectives or supports the government’s policies to pursue sustainability goals. The latter reflects whether a central bank takes on green activities or not. We use panel data of 2,814 country pairs from 1995 to 2019. The empirical results show that while de jure regulation acts as a brake, de facto regulation fosters cross-border banking flows (CBFs). When both genres of regulation are matched, the joint effects are positive. GBR mitigates the detrimental effects of environmental risks. These results are robust for alternative measures of green finance regulation and when we take the endogeneity into account. Our findings suggest important policy implications that central banks should engage in green banking activities to spur CBFs.