3Adjustments in bank leverage act as the linchpin in the monetary transmission mechanism that works through 4 fluctuations in risk-taking. In the international context, we find evidence of monetary policy spillovers on cross-5 border bank capital flows and the US dollar exchange rate through the banking sector. A contractionary shock to US 6 monetary policy leads to a decrease in cross-border banking capital flows and a decline in the leverage of international 7 banks. Such a decrease in bank capital flows is associated with an appreciation of the US dollar. 8

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We investigate global factors associated with cross-border capital flows. We formulate a model of gross capital flows through the international banking system and derive a closed form solution that highlights the leverage cycle of global banks as being a prime determinant of the transmission of financial conditions across borders. We then test the predictions of our model in a panel study of 46 countries and find that global factors dominate local factors as determinants of banking sector capital flows.