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Global banks and international shock transmission: evidence from the crisis

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  • Nicola Cetorelli
  • Linda S. Goldberg

Abstract

Global banks played a significant role in transmitting the 2007-09 financial crisis to emerging-market economies. We examine adverse liquidity shocks on main developed-country banking systems and their relationships to emerging markets across Europe, Asia, and Latin America, isolating loan supply from loan demand effects. Loan supply in emerging markets across Europe, Asia, and Latin America was affected significantly through three separate channels: 1) a contraction in direct, cross-border lending by foreign banks; 2) a contraction in local lending by foreign banks' affiliates in emerging markets; and 3) a contraction in loan supply by domestic banks, resulting from the funding shock to their balance sheets induced by the decline in interbank, cross-border lending. Policy interventions, such as the Vienna Initiative introduced in Europe, influenced the lending-channel effects on emerging markets of shocks to head-office balance sheets.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 446.

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Date of creation: 2010
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Handle: RePEc:fip:fednsr:446

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Keywords: Capital market ; Emerging markets ; International finance ; International liquidity ; Banks and banking; International ; Banks and banking; Foreign ; Financial crises ; Loans; Foreign;

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  17. 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, vol. 90(3), pages 407-428, June.
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