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The two faces of cross-border banking flows: an investigation into the links between global risk, arms-length funding and internal capital markets

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  • Reinhardt, Dennis

    ()
    (Bank of England)

  • Riddiough, Steven

    ()
    (Warwick Business School)

Abstract

We decompose gross cross-border bank-to-bank funding between arms-length (interbank) and related (intragroup) funding, and show that while interbank funding is withdrawn when global risk is high, intragroup funding remains stable during these periods, despite being more volatile on average. We disaggregate intragroup funding further and find advanced economy parent banks benefit from inflows during episodes of heightened global risk. However, we do not find evidence of significantly reduced intragroup funding to foreign affiliates during these periods. Our results are in contradiction with theoretical predictions on the behaviour of cross-border banking flows, and help explain why certain banking systems lost more cross-border bank-to-bank funding than others during the global financial crisis.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 498.

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Length: 51 pages
Date of creation: 17 Apr 2014
Date of revision:
Handle: RePEc:boe:boeewp:0498

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Keywords: Cross-border banking flows; global risk; parent banks and foreign affiliates;

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References

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  1. Ralph De Haas & Iman Van Lelyveld, 2008. "Internal capital markets and lending by multinational bank subsidiaries," Working Papers, European Bank for Reconstruction and Development, Office of the Chief Economist 105, European Bank for Reconstruction and Development, Office of the Chief Economist.
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Cited by:
  1. Kerl, Cornelia & Niepmann, Friederike, 2014. "What determines the composition of international bank flows?," Staff Reports, Federal Reserve Bank of New York 681, Federal Reserve Bank of New York.

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