International Banking and Liquidity Risk Transmission: Lessons from Across Countries

Abstract

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.

Global Spillovers of a China Hard Landing

“…The international banking literature has noted that shocks can be propagated through the activities of global financial institutions (Buch and Goldberg, 2015;Cetorelli and Goldberg, 2012;Correa, Sapriza, and Zlate, 2012). To assess the importance of this transmission channel in the spillovers from China to the United States, we describe the direct and indirect exposures of the U.S. financial sector to Chinese residents.…”

Changing Business Models in International Bank Funding

“…Cross-border internal capital markets are important funding channels for large and globally active banks and play an important role in their international management of liquidity by adjusting funding flows between the parent banks and affiliates overseas (Buch and Goldberg 2015;Cetorelli andGoldberg 2012a, 2012b;De Haas and van Lelyveld 2010). The centralized model involves the use of cross-border funding sources managed from the banks' headquarters or their offices in major financial centers.…”

Bank Loan Supply During Crises: The Importance of Geographic Diversification

“…For each bank we construct 1 For theoretical papers highlighting the importance of bank diversification, see Morgan, Rime and Strahan (2004), Goldberg (2011, 2012), Kalemli-Ozcan, Papaioannou and Perri (2013a), Kalemli-Ozcan, Papaioannou and Peydró (2013b). For empirical evidence see De Haas and Van Lelyveld (2010;2014), Buch and Goldberg (2015); Kerl and Niepmann (2016); Gilje, Loutskina and Strahan (2016); Goetz, Laeven and Levine (2016). Claessens (2017) provides an excellent summary on crossborder lending.…”