Working Paper: CEPR ID: DP14504
Authors: Daniel Belton; Leonardo Gambacorta; Sotirios Kokas; Raoul Minetti
Abstract: We empirically assess the responses of banks in the United States to a regulatory change that influenced the distribution of funding in the banking system. Following the 2011 FDIC change in the assessment base, insured banks found wholesale funding more costly, while uninsured branches of foreign banks enjoyed cheaper access to wholesale liquidity. We use quarterly bank balance sheet data and a rich data set of syndicated loans with borrower and lender characteristics to show that uninsured foreign banks, which faced a relatively positive shock, engaged in liquidity hoarding. Hence, they accumulated more reserves but extended fewer total syndicated loans and became more passive in the syndicated loan deals in which they participated. These results contribute to the discussion on the role of foreign banks in credit creation, especially in a country like the United States where foreign banks also have a crucial role in managing USD money market operations at the group level.
Keywords: foreign banks; liquidity shocks; wholesale funding; syndicated loans
JEL Codes: G21; G28; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FDIC assessment base change (G28) | uninsured foreign banks' holdings of reserves (F34) |
| FDIC assessment base change (G28) | uninsured foreign banks' total lending in the syndicated loan market (F34) |
| FDIC assessment base change (G28) | uninsured foreign banks' participation rates in loan syndication deals (F34) |
| FDIC assessment base change (G28) | uninsured foreign banks' amounts offered in loan syndication deals (F34) |
| increased costs associated with wholesale funding (F65) | insured banks' lending activity (G21) |
| FDIC assessment base change (G28) | liquidity hoarding behavior among uninsured foreign banks (F65) |