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Follow the Money: Quantifying Domestic Effects of Foreign Bank Shocks in the Great Recession

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  • Nicola Cetorelli
  • Linda S. Goldberg

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 40 to 50 cents. However, the extent of the lending effects was very different across branches, depending on their pre-crisis modes of operation in the United States.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17873.

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Date of creation: Feb 2012
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Publication status: published as Nicola Cetorelli & Linda S. Goldberg, 2012. "Follow the Money: Quantifying Domestic Effects of Foreign Bank Shocks in the Great Recession," American Economic Review, American Economic Association, vol. 102(3), pages 213-18, May.
Handle: RePEc:nbr:nberwo:17873

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  1. Nicola Cetorelli & Linda S. Goldberg, 2011. "Liquidity Management of U.S. Global Banks: Internal Capital Markets in the Great Recession," NBER Chapters, National Bureau of Economic Research, Inc, in: Global Financial Crisis National Bureau of Economic Research, Inc.
  2. Nicola Cetorelli & Linda S Goldberg, 2011. "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review, Palgrave Macmillan, Palgrave Macmillan, vol. 59(1), pages 41-76, April.
  3. Atif Mian & Asim Ijaz Khwaja, 2006. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market," NBER Working Papers 12612, National Bureau of Economic Research, Inc.
  4. 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, American Economic Association, vol. 90(3), pages 407-428, June.
  5. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8973.
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Cited by:
  1. Ricardo Correa & Linda S. Goldberg & Tara Rice, 2014. "Liquidity Risk and U.S. Bank Lending at Home and Abroad," NBER Working Papers 20285, National Bureau of Economic Research, Inc.
  2. Nicola Cetorelli & Linda Goldberg, 2011. "Liquidity management of U.S. global banks: internal capital markets in the Great Recession," Staff Reports, Federal Reserve Bank of New York 511, Federal Reserve Bank of New York.
  3. Claudia M. Buch & Linda S. Goldberg, 2014. "International Banking and Liquidity Risk Transmission: Lessons from Across Countries," NBER Working Papers 20286, National Bureau of Economic Research, Inc.
  4. Linda S. Goldberg, 2013. "Banking Globalization, Transmission, and Monetary Policy Autonomy," NBER Working Papers 19497, National Bureau of Economic Research, Inc.
  5. Hosono, Kaoru & Miyakawa, Daisuke & Uchino, Taisuke & Hazama, Makoto & Ono, Arito & Uchida, Hirofumi & Uesugi, Iichiro, 2012. "Natural Disasters, Damage to Banks, and Firm Investment," Working Paper Series, Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University 18, Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University.
  6. Jeon, Bang Nam & Lim, Hosung & Wu, Ji, 2014. "The impact of foreign banks on monetary policy transmission during the global financial crisis of 2008-2009: Evidence from Korea," School of Economics Working Paper Series, LeBow College of Business, Drexel University 2014-7, LeBow College of Business, Drexel University.
  7. MIYAKAWA Daisuke & HOSONO Kaoru & UCHINO Taisuke & ONO Arito & UCHIDA Hirofumi & UESUGI Iichiro, 2014. "Financial Shocks and Firm Exports: A natural experiment approach with a massive earthquake," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 14010, Research Institute of Economy, Trade and Industry (RIETI).
  8. Jonathon Adams-Kane & Julián Caballero & Jamus Lim, 2014. "Foreign Bank Behavior during Financial Crises," IDB Publications 85874, Inter-American Development Bank.
  9. Tomas Adam & Sona Benecka & Ivo Jansky, 2012. "Time-Varying Betas of Banking Sectors," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 62(6), pages 485-504, December.
  10. Gianni La Cava, 2013. "Liquidity Shocks and the US Housing Credit Crisis of 2007–2008," RBA Research Discussion Papers, Reserve Bank of Australia rdp2013-05, Reserve Bank of Australia.
  11. William Goulding & Daniel E. Nolle, 2012. "Foreign banks in the U.S.: a primer," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1064, Board of Governors of the Federal Reserve System (U.S.).

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