Working Paper: NBER ID: w20285
Authors: Ricardo Correa; Linda S. Goldberg; Tara Rice
Abstract: While the balance sheet structure of U.S. banks influences how they respond to liquidity risks, the mechanisms for the effects on and consequences for lending vary widely across banks. We demonstrate fundamental differences across banks without foreign affiliates versus those with foreign affiliates. Among the nonglobal banks (those without a foreign affiliate), cross-sectional differences in response to liquidity risk depend on the banks' shares of core deposit funding. By contrast, differences across global banks (those with foreign affiliates) are associated with ex ante liquidity management strategies as reflected in internal borrowing across the global organization. This intra-firm borrowing by banks serves as a shock absorber and affects lending patterns to domestic and foreign customers. The use of official-sector emergency liquidity facilities by global and nonglobal banks in response to market liquidity risks tends to reduce the importance of ex ante differences in balance sheets as drivers of cross-sectional differences in lending.
Keywords: liquidity risk; bank lending; US banks; international banking
JEL Codes: F3; G21; G38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liquidity risk (G33) | domestic lending growth (G21) |
| core deposit ratio (E51) | domestic lending growth (G21) |
| liquidity risk (G33) | lending for banks with lower core deposit ratios (G21) |
| internal liquidity management strategies (F32) | domestic lending stability (G21) |
| use of official liquidity facilities (E52) | impact of liquidity risk on lending behavior (G21) |
| liquidity risk measures + bank characteristics + official sector liquidity facilities (E44) | lending growth (G21) |
| higher internal borrowing (H74) | greater stability in domestic lending (G21) |