The international transmission of financial shocks: The case of Japan

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