THE INTERNATIONAL TRANSMISSION OF FINANCIAL SHOCKS - THE CASE OF JAPAN

The size of Japanese bank lending operations in the United States enab les us to use US. banking data to investigate the extent to which the sharp decline in Japanese stock prices was transmitted to the United S tates via US. branches of Japanese parent banks, as well as to identif y a supply shock to U.S. bank lending that is independent of U.S. loan demand. We find that binding risk-based capital requirements associat ed with the Japanese stock market decline resulted in a decrease in le nding by Japanese banks in the United States that was both economicall y and statistically significant.