International Banking and Liquidity Risk Transmission: Evidence from the United States

The balance sheet structure of U.S. banks influences how they respond to liquidity risks. We find the responses differ in fundamental ways across banks without foreign affiliates vs. those with foreign affiliates. Among banks without foreign affiliates, cross-sectional differences in response to liq...

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Bibliographic Details
Published in:IMF economic review 2015-11, Vol.63 (3), p.626-643
Main Authors: CORREA, RICARDO, GOLDBERG, LINDA S., RICE, TARA
Format: Article
Language:English
Subjects:
Affiliates
Analysis
Balance sheets
Bank assets
Bank capital
Bank credit
Bank holding companies
Bank liquidity
Bank loans
Banking
Banking industry
Banks
Borrowing
Capital
Capital Markets
Credit
Economic crisis
Economic Policy
Economic statistics
Economic theory
Economics
Economics and Finance
F42
Finance
Foreign banks
Foreign residents
Funding
G01
G21
International banking
International Economics
International finance
International lending
International liquidity
Liquidity
Liquidity (Finance)
Liquidity risk
Loans
Macroeconomics/Monetary Economics//Financial Economics
Management
Risk
Studies
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Summary:The balance sheet structure of U.S. banks influences how they respond to liquidity risks. We find the responses differ in fundamental ways across banks without foreign affiliates vs. those with foreign affiliates. Among banks without foreign affiliates, cross-sectional differences in response to liquidity risk depend on the banks' shares of core deposit funding, Tier 1 capital, and outstanding credit commitments. Among banks with foreign affiliates, the global banks, liquidity management strategies as reflected in interanl borrowing and lending across the global organization matter. This intrabank borrowing serves as a shock absorber and affects lending growth to domestic and foreign customers. Across all banks, the use of official sector emergency liquidity facilities tends to reduce the importance of ex ante differences in balance sheets as drivers of cross-sectional differences in lending in response to market liquidity risks.
ISSN:2041-4161
2041-417X
DOI:10.1057/imfer.2015.28