Monetary policy spillovers under COVID-19: Evidence from lending by U.S. foreign bank subsidiaries.

This paper uses Call Report data to examine the impact of home country monetary policy on foreign bank subsidiary lending in the United States during the COVID-19 pandemic. Examining a large sample of foreign bank subsidiaries and domestic U.S. banks, we find that foreign bank lending growth was positively associated with both lower home country policy rates and negative home country rates. Point estimates indicate that a one standard deviation decrease in home country policy rates was associated with a 3.5 percentage point increase in lending growth, while negative home country policy rates added an additional 3.0 percentage points on average. Disparities in sensitivity to home country rates also exist by bank size, as large banks exhibited more responsiveness to home country policy rate levels, but were less responsive to negative policy rates. Easier home country policy rates are also found to impact negatively on growth in capital ratios and bank income, in keeping with expanded foreign subsidiary activity. However, income responses to negative home country rates are mixed, in a manner suggesting balance sheet adjustment to changes in relative home and host country conditions. Overall, our findings confirm that the bank lending channel for global monetary policy spillovers was active during the pandemic crisis.