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Follow the Money: Quantifying Domestic Effects of Foreign Bank Shocks in the Great Recession

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  • Nicola Cetorelli
  • Linda S. Goldberg

Abstract

Foreign banks pulled significant funding from their US branches during the Great Recession. We estimate that the average-sized branch experienced a twelve percent net internal fund "withdrawal," with the fund transfer disproportionately bigger for larger branches. This internal shock to the balance sheet of US 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 forty to fifty 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.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 3 (May)
Pages: 213-18

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:3:p:213-18

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  1. Cetorelli, Nicola & Goldberg, Linda S., 2012. "Liquidity management of U.S. global banks: Internal capital markets in the great recession," Journal of International Economics, Elsevier, vol. 88(2), pages 299-311.
  2. Atif Mian & Asim Ijaz Khwaja, 2006. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market," NBER Working Papers 12612, National Bureau of Economic Research, Inc.
  3. Nicola Cetorelli & Linda S Goldberg, 2011. "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review, Palgrave Macmillan, Palgrave Macmillan, vol. 59(1), pages 41-76, April.
  4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8973.
  5. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, American Economic Association, vol. 90(3), pages 407-428, June.
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Cited by:
  1. Hosono, Kaoru & Miyakawa, Daisuke & Uchino, Taisuke & Hazama, Makoto & Ono, Arito & Uchida, Hirofumi & Uesugi, Iichiro, 2012. "Natural Disasters, Damage to Banks, and Firm Investment," Working Paper Series 18, Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University.
  2. Linda S. Goldberg, 2013. "Banking globalization, transmission, and monetary policy autonomy," Staff Reports 640, Federal Reserve Bank of New York.
  3. Nicola Cetorelli & Linda S. Goldberg, 2011. "Liquidity management of U.S. global banks: Internal capital markets in the great recession," NBER Working Papers 17355, National Bureau of Economic Research, Inc.
  4. Jeon, Bang Nam & Lim, Hosung & Wu, Ji, 2014. "The impact of foreign banks on monetary policy transmission during the global financial crisis of 2008-2009: Evidence from Korea," School of Economics Working Paper Series, LeBow College of Business, Drexel University 2014-7, LeBow College of Business, Drexel University.
  5. Correa, Ricardo & Goldberg, Linda S. & Rice, Tara, 2014. "Liquidity risk and U.S. bank lending at home and abroad," Staff Reports 676, Federal Reserve Bank of New York.
  6. William Goulding & Daniel E. Nolle, 2012. "Foreign banks in the U.S.: a primer," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1064, Board of Governors of the Federal Reserve System (U.S.).
  7. Claudia M. Buch & Linda S. Goldberg, 2014. "International Banking and Liquidity Risk Transmission: Lessons from Across Countries," NBER Working Papers 20286, National Bureau of Economic Research, Inc.
  8. Jonathon Adams-Kane & Julián Caballero & Jamus Lim, 2014. "Foreign Bank Behavior during Financial Crises," IDB Publications 85874, Inter-American Development Bank.
  9. Gianni La Cava, 2013. "Liquidity Shocks and the US Housing Credit Crisis of 2007–2008," RBA Research Discussion Papers, Reserve Bank of Australia rdp2013-05, Reserve Bank of Australia.
  10. Tomas Adam & Sona Benecka & Ivo Jansky, 2012. "Time-Varying Betas of Banking Sectors," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 62(6), pages 485-504, December.
  11. MIYAKAWA Daisuke & HOSONO Kaoru & UCHINO Taisuke & ONO Arito & UCHIDA Hirofumi & UESUGI Iichiro, 2014. "Financial Shocks and Firm Exports: A natural experiment approach with a massive earthquake," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 14010, Research Institute of Economy, Trade and Industry (RIETI).

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