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Crises, rescues, and policy transmission through international banks

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  • Buch, Claudia M.
  • Koch, Cathérine Tahmee
  • Koetter, Michael

Abstract

The World Financial Crisis has shaken the fundamentals of international banking and triggered a downward spiral of asset prices. To prevent a further meltdown of markets, governments have intervened massively through rescues measures aimed at recapitalizing banks and through liquidity support. We use a detailed, banklevel dataset for German banks to analyze how the lending and borrowing of their foreign affiliates has responded to domestic (German) and to US crisis support schemes. We analyze how these policy interventions have spilled over into foreign markets. We identify loan supply shocks by exploiting that not all banks have received policy support and that the timing of receiving support measures has differed across banks. We find that banks covered by rescue measures of the German government have increased their foreign activities after these policy interventions, but they have not expanded relative to banks not receiving support. Banks claiming liquidity support under the Term Auction Facility (TAF) program have withdrawn from foreign markets outside the US, but they have expanded relative to affiliates of other German banks. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2011,15.

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Date of creation: 2011
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Handle: RePEc:zbw:bubdp1:201115

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Keywords: Cross-border banking; financial crisis; government support; Term Auction Facility;

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References

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  1. Rose, Andrew & Wieladek, Tomasz, 2011. "Financial protectionism: the first tests," Discussion Papers, Monetary Policy Committee Unit, Bank of England 32, Monetary Policy Committee Unit, Bank of England.
  2. Huang, Rocco & Ratnovski, Lev, 2011. "The dark side of bank wholesale funding," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 20(2), pages 248-263, April.
  3. Bank for International Settlements, 2009. "An assessment of financial sector rescue programmes," BIS Papers, Bank for International Settlements, number 48.
  4. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró, José-Luis, 2010. "What lies beneath the euro's effect on financial integration? Currency risk, legal harmonization, or trade?," Journal of International Economics, Elsevier, Elsevier, vol. 81(1), pages 75-88, May.
  5. Giannetti, Mariassunta & Laeven, Luc, 2012. "The flight home effect: Evidence from the syndicated loan market during financial crises," Journal of Financial Economics, Elsevier, Elsevier, vol. 104(1), pages 23-43.
  6. Ralph de Haas & Iman van Lelyveld, 2003. "Foreign Banks and Credit Stability in Central and Eastern Europe: A Panel Data Analysis," DNB Staff Reports (discontinued), Netherlands Central Bank 109, Netherlands Central Bank.
  7. Stolz, Stéphanie Marie & Wedow, Michael, 2010. "Extraordinary measures in extraordinary times – Public measures in support of the financial sector in the EU and the United States," Occasional Paper Series 117, European Central Bank.
  8. Ralph De Haas & Neeltje Van Horen, 2013. "Running for the Exit? International Bank Lending During a Financial Crisis," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 26(1), pages 244-285.
  9. Düwel, Cornelia & Frey, Rainer & Lipponer, Alexander, 2011. "Cross-border bank lending, risk aversion and the financial crisis," Discussion Paper Series 1: Economic Studies 2011,29, Deutsche Bundesbank, Research Centre.
  10. David Roodman, 2007. "A Note on the Theme of Too Many Instruments," Working Papers, Center for Global Development 125, Center for Global Development.
  11. Claudia M. Buch & Cathérine Tahmee Koch & Michael Kötter, 2009. "Margins of International Banking: Is there a Productivity Pecking Order in Banking, too?," CESifo Working Paper Series 2891, CESifo Group Munich.
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Cited by:
  1. Buch, Claudia M. & Goldberg, Linda, 2014. "International banking and liquidity risk transmission: Lessons from across countries," Discussion Papers 17/2014, Deutsche Bundesbank, Research Centre.
  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 & K. Neugebauer & C. Schröder, 2013. "Changing Forces of Gravity: How the Crisis Affected International Banking," IWH Discussion Papers, Halle Institute for Economic Research 15, Halle Institute for Economic Research.
  4. Düwel, Cornelia, 2013. "Repo funding and internal capital markets in the financial crisis," Discussion Papers 16/2013, Deutsche Bundesbank, Research Centre.
  5. Frey, Rainer & Düwel, Cornelia, 2013. "Competition between foreign affiliates: Multinational banks internal funding in the crisis," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80013, Verein für Socialpolitik / German Economic Association.
  6. Düwel, Cornelia & Frey, Rainer, 2012. "Competition for internal funds within multinational banks: Foreign affiliate lending in the crisis," Discussion Papers 19/2012, Deutsche Bundesbank, Research Centre.

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