We use detailed data on over 350 banks in emerging Europe to analyze how bank ownership and the Vienna Initiative impacted credit growth during the Great Recession. As part of the Vienna Initiative, western European banks signed country-specific commitment letters in which they pledged to maintain exposures and to support their subsidiaries in emerging Europe. We show that while both domestic and foreign banks sharply curtailed credit during the financial crisis, foreign banks that participated in the Vienna Initiative were relatively stable lenders. We find no evidence of negative spillovers from countries where banks signed commitment letters to countries where they did not.

We use data on UK banks׳ minimum capital requirements to study the impact of changes to bank-specific capital requirements on cross-border bank loan supply from 1999Q1 to 2006Q4. By examining a sample in which each recipient country has multiple relationships with UK-resident banks, we are able to control for demand effects. We find a negative and statistically significant effect of changes to banks׳ capital requirements on cross-border lending: a 100 basis point increase in the requirement is associated with a reduction in the growth rate of cross-border credit of 5.5 percentage points. We also find that banks tend to favor their most important country relationships, so that the negative cross-border credit supply response in “core” countries is significantly less than in others. Banks tend to cut back cross-border credit to other banks (including foreign affiliates) more than to firms and households, consistent with shorter maturity, wholesale lending which is easier to roll off and may be associated with weaker borrowing relationships.