Working Paper: NBER ID: w20286
Authors: Claudia M. Buch; Linda S. Goldberg
Abstract: Activities of international banks have been at the core of discussions on the causes and effects of the international financial crisis. Yet we know little about the actual magnitudes and mechanisms for transmission of liquidity shocks through international banks, including the reasons for heterogeneity in transmission across banks. The International Banking Research Network, established in 2012, brings together researchers from around the world with access to micro-level data on individual banks to analyze issues pertaining to global banks. This paper summarizes the common methodology and results of empirical studies conducted in eleven countries to explore liquidity risk transmission. Among the main results is, first, that explanatory power of the empirical model is higher for domestic lending than for international lending. Second, how liquidity risk affects bank lending depends on whether the banks are drawing on official-sector liquidity facilities. Third, liquidity management across global banks can be important for liquidity risk transmission into lending. Fourth, there is substantial heterogeneity in the balance sheet characteristics that affect banks' responses to liquidity risk. Overall, balance sheet characteristics of banks matter for differentiating their lending responses, mainly in the realm of cross-border lending.
Keywords: International Banking; Liquidity Risk; Cross-Border Lending; Bank Lending; Financial Crisis
JEL Codes: F3; F42; F6; G21; G28; 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 loan growth (G51) |
| liquidity risk (G33) | bank lending (G21) |
| access to official-sector liquidity facilities (E44) | bank lending (G21) |
| liquidity management practices (G33) | transmission of liquidity risk into lending (F65) |
| balance sheet characteristics (G32) | banks' responses to liquidity risk (G21) |
| balance sheet factors (G32) | domestic lending growth (G21) |
| balance sheet factors (G32) | cross-border lending (F34) |