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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 the transmission of the 2007 to 2009 crisis to emerging market economies. We examine the relationships between adverse liquidity shocks on main developed-country banking systems to emerging markets across Europe, Asia, and Latin America, isolating loan supply from loan demand effects. Loan supply in emerging markets was significantly affected through three separate channels: a contraction in direct, cross-border lending by foreign banks; a contraction in local lending by foreign banks’ affiliates in emerging markets; and a contraction in loan supply by domestic banks resulting from the funding shock to their balance sheet 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 head office balance sheet shocks.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15974.

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Date of creation: May 2010
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Publication status: published as Nicola Cetorelli & Linda S Goldberg, 2011. "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review, Palgrave Macmillan, vol. 59(1), pages 41-76, April.
Handle: RePEc:nbr:nberwo:15974

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  1. Jonathan Eaton & Sam Kortum & Brent Neiman & John Romalis, 2010. "Trade and the global recession," Working Paper Research, National Bank of Belgium 196, National Bank of Belgium.
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