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

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  • Nicola Cetorelli
  • Linda S. Goldberg

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 use the Great Recession as an opportunity to identify the balance sheet shocks to parent banks in the United States, and then explore which foreign affiliate features are associated with those businesses being protected, for example their status as important locations in sourcing funding or as destinations for foreign investment activity. We show that distance from the parent organization lays a significant role in this allocation, where distance is bank-affiliate specific and depends on the ex ante relative importance of such locations as local funding pools and in their overall foreign investment strategies. These flows are a form of global interdependence previously unexplored in the literature on international shock transmission.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17355.

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Date of creation: Aug 2011
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Publication status: published as Nicola Cetorelli, Linda S. Goldberg. "Liquidity Management of U.S. Global Banks: Internal Capital Markets in the Great Recession," in Charles Engel, Kristin Forbes, and Jeffrey Frankel, organizers, "Global Financial Crisis" Elsevier, Journal of International Economics 88(2) (2012)
Handle: RePEc:nbr:nberwo:17355

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Citations

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Cited by:
  1. Caroline Van Rijckeghem & Beatrice Weder di Mauro, 2013. "Financial Deglobalization: Is The World Getting Smaller?," Working Papers 2013/14, Bogazici University, Department of Economics.
  2. 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.
  3. Francis, Johanna L. & Aykut, Dilek & Tereanu, Eugen, 2014. "The cost of private debt over the credit cycle," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 146-181.
  4. Düwel, Cornelia, 2013. "Repo funding and internal capital markets in the financial crisis," Discussion Papers 16/2013, Deutsche Bundesbank, Research Centre.
  5. Victoria Ivashina & David S. Scharfstein & Jeremy C. Stein, 2012. "Dollar Funding and the Lending Behavior of Global Banks," NBER Working Papers 18528, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
  8. 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).
  9. Leonardo Gambacorta & Adrian Van Rixtel, 2013. "Structural bank regulation initiatives: approaches and implications," BIS Working Papers 412, Bank for International Settlements.
  10. Linda S. Goldberg, 2013. "Banking globalization, transmission, and monetary policy autonomy," Staff Reports 640, Federal Reserve Bank of New York.

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