primacy-recency biases and the availability heuristic), we exploit this time variation in crisis recency as instruments to help us isolate the effect of learning from crisis experiences, as opposed to other systematic selection effects.

Our findings rely on a novel dataset of foreign subsidiaries of international banks operating in developing countries, which includes the identity of the home country of the parent bank. We merge this information on ownership with country-level data on the history of financial crises (Reinhart & Rogoff 2009), and construct a variable that captures the stock of a bank’s financial crisis experiences, along with the time elapsed since the last banking, currency, debt, or stock market crisis (which we use as instruments). We then use this measure to examine the extent to which past experience with crises affects a foreign bank’s lending patterns in the recent 2007/08 crisis. Our focus on only foreign banks in developing countries enables us to simultaneously exclude the role of these banks in precipitating the crisis (which was imported from high-income countries), while at the same time maintaining an appropriate counterfactual (since domestic banks typically differ from foreign ones).

We find that banks with greater crisis experience reduced their lending to a greater degree relative to other banks. In our baseline instrumental variables (IV) estimates, the shrinkage in lending by a bank that had experienced 10 more crisis episodes is to the order of 0.8 to 1.1 of a percentage point. The main qualitative message from our results survives a host of robustness checks, including variations in measurement, specification, and estimation methodology. We then proceed to examine whether certain _types_ of crises may be responsible for the results. We find that, consistent with intuition, crises that affect the balance sheet of banks appear to drive the learning There is a raft of studies that consider the general issue of post-crisis lending behavior of foreign banks. In general, this literature has found that foreign banks tend to contract credit by less than domestic banks following a crisis (de Haas & van Lelyveld 2006; Detragiache & Gupta 2006; LevyYeyati & Micco 2007). But it is unclear whether this is simply because foreign banks tend to exercise greater prudence in their pre-crisis lending behavior—and so require less post-crisis reassessment of their loan portfolios—or if they are less constrained by the post-crisis liquidity crunch, perhaps because they are better able to access to credit lines from their parent banks. Just as important, foreign banks may experience solvency constraints that are quite distinct from those of domestic banks, given the likelihood that their balance sheets likely comprise different assets. Our decision to constrain our analysis to only foreign banks, therefore, is guided by the fact that failure to distinguish between the two classes of banks renders it impossible to infer the extent to which learning, rather than other factors, conditions banks’ lending activity.<sup>2</sup> Of course, even among foreign banks, there is evidence of differential post-crisis lending behavior, depending on the characteristics of the bank and the primary markets they serve (de Haas & van Horen 2012a,b; de Haas & van Lelyveld 2010, 2014). Foreign banks that possess greater

> 2The focus of much of this rich literature is also on credit provision, rather than other elements of bank performance. A major reason for this is that bank performance metrics tend to exhibit far less stability after a crisis (for reasons we document in Subsection 4.1). Detragiache & Gupta (2006) and Micco, Panizza & Ya ̃nez (2007) are two notable exceptions that consider alternative metrics in a post-crisis setting.

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