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Follow the money: quantifying domestic effects of foreign bank shocks in the Great Recession

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Abstract

Foreign banks pulled significant funding from their U.S. branches during the Great Recession. We estimate that the average-sized branch experienced a 12 percent net internal fund ?withdrawal,? with the fund transfer disproportionately bigger for larger branches. This internal shock to the balance sheets of U.S. 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 precrisis modes of operation in the United States.

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  • 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.
    • Handle: RePEc:fip:fednsr:545
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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.
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    More about this item

    Keywords

    Recessions; Banks and banking; Foreign; Bank loans; Branch banks;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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