Cross-border interbank liquidity, crises, and monetary policy

We analyze how the Lehman and sovereign crises affect cross-border interbank liquidity, exploiting euro-area proprietary interbank data, crisis and monetary shocks, and loan terms to the same borrower during the same day by domestic versus foreign lenders. Crisis shocks reduce the supply of cross-bo...

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Bibliographic Details
Published in:Journal of international economics 2022-11, Vol.139, p.103657, Article 103657
Main Authors: Abbassi, Puriya, Bräuning, Falk, Fecht, Falko, Peydró, José-Luis
Format: Article
Language:English
Subjects:
Banks
Cross-border lending
Financial crises
International liquidity
Monetary policy
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Summary:We analyze how the Lehman and sovereign crises affect cross-border interbank liquidity, exploiting euro-area proprietary interbank data, crisis and monetary shocks, and loan terms to the same borrower during the same day by domestic versus foreign lenders. Crisis shocks reduce the supply of cross-border liquidity, with stronger volume than pricing effects. On the extensive margin, results suggest that the cross-border credit crunch is independent of borrower quality, while—on the intensive margin—riskier borrower banks suffer more. Moreover, the cross-border liquidity crunch is substantially stronger for term loans, and weaker for foreign lender banks that have a subsidiary in the same country than the borrower. Finally, nonstandard monetary policy improves interbank liquidity, but without fostering strong re-integration of cross-border interbank markets.
ISSN:0022-1996
1873-0353
DOI:10.1016/j.jinteco.2022.103657