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Liquidity management of U.S. global banks: Internal capital markets in the great recession

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  • Cetorelli, Nicola
  • Goldberg, Linda S.

Abstract

The recent crisis highlighted the importance of globally active banks in linking markets. One channel for this linkage is through how these banks manage liquidity across their entire banking organization. We document that funds regularly flow between parent banks and their affiliates in diverse foreign markets. We show that parent banks, when hit by a funding shock, reallocate liquidity in the organization according to a locational pecking order. Affiliate locations that are important for the parent bank revenue streams are relatively protected from liquidity reallocations in the organization, while traditional funding locations are more extensively used to buffer shocks to the parent bank balance sheets.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 88 (2012)
Issue (Month): 2 ()
Pages: 299-311

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Handle: RePEc:eee:inecon:v:88:y:2012:i:2:p:299-311

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Bank; Global bank; Liquidity; Transmission; Internal capital market; Crisis;

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References

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Citations

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Cited by:
  1. Victoria Ivashina & David S. Scharfstein & Jeremy C. Stein, 2012. "Dollar funding and the lending behavior of global banks," Finance and Economics Discussion Series 2012-74, Board of Governors of the Federal Reserve System (U.S.).
  2. Jeon, Bang Nam & Olivero, María Pía & Wu, Ji, 2013. "Multinational banking and the international transmission of financial shocks: Evidence from foreign bank subsidiaries," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 952-972.
  3. Nicola Cetorelli & Linda S. Goldberg, 2012. "Follow the money: quantifying domestic effects of foreign bank shocks in the Great Recession," Staff Reports 545, Federal Reserve Bank of New York.
  4. Eugen Tereanu & Johanna L. Francis & Dilek Aykut, 2010. "The Cost of Private Debt Over the Credit Cycle," IMF Working Papers 10/283, International Monetary Fund.
  5. Spiros Bougheas & Hosung Lim & Simona Mateut & Paul Mizen & Cihan Yalcin, . "Lessons from the Asian Crisis: An Open Economy Credit Channel Model where Export Status Matters," Discussion Papers 12/16, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  6. Düwel, Cornelia, 2013. "Repo funding and internal capital markets in the financial crisis," Discussion Papers 16/2013, Deutsche Bundesbank, Research Centre.
  7. Kristin Forbes, 2012. "The "Big C": Identifying Contagion," NBER Working Papers 18465, National Bureau of Economic Research, Inc.
  8. Leonardo Gambacorta & Adrian van Rixtel, 2013. "Structural bank regulation initiatives: approaches and implications," BANCARIA, Bancaria Editrice, vol. 6, pages 14-27, June.
  9. Allen, Franklin & Jackowicz, Krzysztof & Kowalewski, Oskar, 2013. "The effects of foreign and government ownership on bank lending behavior during a crisis in Central and Eastern Europe," MPRA Paper 48059, University Library of Munich, Germany.
  10. Popov, Alexander & Udell, Gregory F., 2012. "Cross-border banking, credit access, and the financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 147-161.
  11. Caroline Van Rijckeghem & Beatrice Weder di Mauro, 2013. "Financial Deglobalization: Is The World Getting Smaller?," Working Papers 2013/14, Bogazici University, Department of Economics.
  12. Noeth, Bryan J. & Sengupta, Rajdeep, 2012. "Global European banks and the financial crisis," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 457-480.
  13. Linda S. Goldberg, 2013. "Banking Globalization, Transmission, and Monetary Policy Autonomy," NBER Working Papers 19497, National Bureau of Economic Research, Inc.
  14. Cerutti, Eugenio & Schmieder, Christian, 2014. "Ring fencing and consolidated banks’ stress tests," Journal of Financial Stability, Elsevier, vol. 11(C), pages 1-12.
  15. Yorulmazer, Tanju, 2014. "Literature review on the stability of funding models," Economic Policy Review, Federal Reserve Bank of New York, issue Feb, pages 3-16.
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  17. Vincent Bouvatier & Michael Brei & Xi Yang, 2014. "Bank Failures and the Source of Strength Doctrine," EconomiX Working Papers 2014-15, University of Paris West - Nanterre la Défense, EconomiX.

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