International Banking and Liquidity Risk Transmission: Evidence from the United States (original) (raw)
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Liquidity Risk and U.S. Bank Lending at Home and Abroad
2014
While the balance sheet structure of U.S. banks influences how they respond to liquidity risks, the mechanisms for the effects on and consequences for lending vary widely across banks. We demonstrate fundamental differences across banks without foreign affiliates versus those with foreign affiliates. Among the nonglobal banks (those without a foreign affiliate), cross-sectional differences in response to liquidity risk depend on the banks' shares of core deposit funding. By contrast, differences across global banks (those with foreign affiliates) are associated with ex ante liquidity management strategies as reflected in internal borrowing across the global organization. This intra-firm borrowing by banks serves as a shock absorber and affects lending patterns to domestic and foreign customers. The use of official-sector emergency liquidity facilities by global and nonglobal banks in response to market liquidity risks tends to reduce the importance of ex ante differences in balance sheets as drivers of cross-sectional differences in lending.
International Banking and Liquidity Risk Transmission: Lessons from Across Countries
2014
Activities of international banks have been at the core of discussions on the causes and effects of the international financial crisis. Yet we know little about the actual magnitudes and mechanisms for transmission of liquidity shocks through international banks, including the reasons for heterogeneity in transmission across banks. The International Banking Research Network, established in 2012, brings together researchers from around the world with access to micro-level data on individual banks to analyze issues pertaining to global banks. This paper summarizes the common methodology and results of empirical studies conducted in eleven countries to explore liquidity risk transmission. Among the main results is, first, that explanatory power of the empirical model is higher for domestic lending than for international lending. Second, how liquidity risk affects bank lending depends on whether the banks are drawing on official-sector liquidity facilities. Third, liquidity management across global banks can be important for liquidity risk transmission into lending. Fourth, there is substantial heterogeneity in the balance sheet characteristics that affect banks' responses to liquidity risk. Overall, balance sheet characteristics of banks matter for differentiating their lending responses, mainly in the realm of cross-border lending.
International Banking and Liquidity Risk Transmission: Lessons from the United Kingdom
SSRN Electronic Journal, 2015
Activities of international banks have been at the core of discussions on the causes and effects of the international financial crisis. Yet we know little about the actual magnitudes and mechanisms for transmission of liquidity shocks through international banks, including the reasons for heterogeneity in transmission across banks. The International Banking Research Network, established in 2012, brings together researchers from around the world with access to micro-level data on individual banks to analyze issues pertaining to global banks. This paper summarizes the common methodology and results of empirical studies conducted in eleven countries to explore liquidity risk transmission. Among the main results is, first, that explanatory power of the empirical model is higher for domestic lending than for international lending. Second, how liquidity risk affects bank lending depends on whether the banks are drawing on official-sector liquidity facilities. Third, liquidity management across global banks can be important for liquidity risk transmission into lending. Fourth, there is substantial heterogeneity in the balance sheet characteristics that affect banks' responses to liquidity risk. Overall, balance sheet characteristics of banks matter for differentiating their lending responses, mainly in the realm of cross-border lending.
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A comparison of the balance sheet strategies of foreign-owned and domestic-owned U.S. banks
International Review of Economics & Finance, 1993
This paper examines the balance sheet strate@es of foreign-owned banks chartered in the U.S. relative to a matched sample of domestic-owned banks. These "strategies" are revealed in the asset/liability behavior of the sample banks. The sample banks are limited to those with domestic offices only so as to isolate strategy behaviors in U.S. markets.
2012, Liquidity Shocks, Dollar Funding Costs, and the Bank Lending Channel During
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This paper documents a new type of cross-border bank lending channel. The deepening of the European sovereign debt crisis in 2011 restrained the financial intermediation of European banks in the United States. In this period, some of the U.S. branches of European banks faced a dollar liquidity shock-due to their perceived risk reflecting the sovereign risk of their countries of origin-which in turn affected the branches' lending to U.S. entities. We use a novel dataset to analyze the operations of branches of foreign banks in the United States. Our results show that: (1) The U.S. branches of European banks experienced a run on their deposits, mainly from U.S. money market funds. (2) The branches with curtailed access to large time deposits relied more on funding from their own parent institutions, thus shifting from being net suppliers to being net receivers of dollar funding from their related offices. (3) Since the additional funding received from parent institutions was not enough to offset the decreased access to U.S. funding, such branches reduced their lending to U.S. entities.
Foreign bank lending in the U.S. during three U.S. recessions
Global Finance Journal, 2020
received negative publicity again during the 2008 recession, when both foreign and domestic banks received significant financial support from the Fed as part of the Troubled Asset Relief Program (TARP) authorized by the Emergency Economic Stabilization Act of 2008 to stem the fallout from the subprime mortgage crisis. 2 Globally, foreign banks have been shown to play a positive economic role, especially in emerging markets, by increasing efficiency, lowering the costs of financial intermediation, and improving regulation (see Claessens & Horen, 2012, 2013 for reviews). Since foreign banks have access to the internal capital markets of their parent banks, they can respond differently during business cycles in the host countries by increasing lending during downturns. Studies before the 2008 recession show mixed results on the responses of foreign banks during domestic crises.
SSRN Electronic Journal, 2000
We examine the international transmission of liquidity and capital shocks from multinational bank-holding companies to their subsidiaries. Our findings are consistent with the studies that document the negative impact of parent bank fragility on subsidiaries' lending. We further find that foreign bank lending is determined by different factors in developing economies and in developed countries. Moreover, the reduction in lending is stronger for those subsidiaries that are dependent on the interbank market. Finally, we find that market discipline plays a less important role in developing economies during the recent crisis. Instead, liquidity needs determine the change in deposits.
SSRN Electronic Journal, 2000
Evidence abounds on the propagation of financial stresses originating in the US mortgage market to banking systems worldwide through international funding markets. But the transmission of this external funding shock to the real economy via bank lending is surprisingly underexamined, given the central importance ascribed to this channel of contagion by policymakers. This paper provides evidence of this transmission for the UK-resident banking system, the largest in the world by asset size. It uses a novel data set, created from detailed and confidential balance sheet data reported by individual banks quarterly to the Bank of England. I find that the shock to foreign funding caused a substantial pullback in domestic lending. The results are derived using a range of instruments to correct for endogeneity and omitted variable bias. Foreign subsidiaries and branches reduced lending by a larger amount than domestically owned banks, while the latter calibrated the reduction in domestic lending more closely to the size of the funding shock.