Working Paper: NBER ID: w17873
Authors: Nicola Cetorelli; Linda S. Goldberg
Abstract: Foreign banks pulled significant funding from their U.S. branches during the Great Recession. We estimate that the average-sized branch experienced a 12 percent net internal fund "withdrawal," with the fund transfer disproportionately bigger for larger branches. This internal shock to the balance sheets of U.S. branches of foreign banks had sizable effects on their lending. On average, for each dollar of funds transferred internally to the parent, branches decreased lending supply by about 40 to 50 cents. However, the extent of the lending effects was very different across branches, depending on their pre-crisis modes of operation in the United States.
Keywords: foreign banks; funding shocks; lending behavior; Great Recession
JEL Codes: E44; F36; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher ABCP exposure (F65) | Greater fund withdrawals from U.S. branches (F29) |
| Greater fund withdrawals from U.S. branches (F29) | Decrease in lending supply (G21) |
| Higher ABCP exposure (F65) | Decrease in lending supply (G21) |
| Internal shock (E32) | Decrease in lending supply (G21) |
| Higher ABCP exposure (F65) | More substantial contraction in lending (G21) |
| Branch size (L25) | Access to alternative funding sources (O16) |