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Banking globalization, monetary transmission and the lending channel

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Author Info
Cetorelli, Nicola
Goldberg, Linda S.

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Abstract

The globalization of banking in the United States is influencing the monetary transmission mechanism both domestically and in foreign markets. Using quarterly information from all U.S. banks filing call reports between 1980 and 2005, we find evidence for the lending channel for monetary policy in large banks, but only those banks that are domestically-oriented and without international operations. We show that the large globally-oriented banks rely on internal capital markets with their foreign affiliates to help smooth domestic liquidity shocks. We also show that the existence of such internal capital markets contributes to an international propagation of domestic liquidity shocks to lending by affiliated banks abroad. While these results imply a substantially more active lending channel than documented in the seminal work of Kashyap and Stein (2000), the lending channel within the United States is declining in strength as banking becomes more globalized. --

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2008,21.

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Date of creation: 2008
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Handle: RePEc:zbw:bubdp1:7446

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Related research
Keywords: Lending channel; Bank; global; liquidity; transmission; internal capital markets;

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Find related papers by JEL classification:
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Houston, Joel & James, Christopher & Marcus, David, 1997. "Capital market frictions and the role of internal capital markets in banking," Journal of Financial Economics, Elsevier, vol. 46(2), pages 135-164, November. [Downloadable!] (restricted)
  2. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 869-902, August. [Downloadable!] (restricted)
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  3. Julian di Giovanni & Jay C. Shambaugh, 2006. "The Impact of Foreign Interest Rates on the Economy: The Role of the Exchange Rate Regime," IMF Working Papers 06/37, International Monetary Fund. [Downloadable!]
    Other versions:
  4. Argia M. Sbordone, 2007. "Globalization and Inflation Dynamics: the Impact of Increased Competition," NBER Working Papers 13556, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Anil K. Kashyap & Jeremy C. Stein, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June. [Downloadable!] (restricted)
  6. Murillo Campello, 2002. "Internal Capital Markets in Financial Conglomerates: Evidence from Small Bank Responses to Monetary Policy," Journal of Finance, American Finance Association, vol. 57(6), pages 2773-2805, December. [Downloadable!] (restricted)
  7. Adam B. Ashcraft, 2001. "New evidence on the lending channel," Staff Reports 136, Federal Reserve Bank of New York. [Downloadable!]
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  8. Anil K. Kashyap & Jeremy C. Stein, 1994. "Monetary Policy and Bank Lending," NBER Chapters, in: Monetary Policy, pages 221-261 National Bureau of Economic Research, Inc. [Downloadable!]
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  9. Stijn Claessens & Neeltje van Horen, 2008. "Location Decisions of Foreign Banks and Institutional Competitive Advantage," DNB Working Papers 172, Netherlands Central Bank, Research Department. [Downloadable!]
  10. Donald Morgan & Bertrand Rime & Philip E. Strahan, 2004. "Bank Integration and State Business Cycles," The Quarterly Journal of Economics, MIT Press, vol. 119(4), pages 1555-1584, November. [Downloadable!] (restricted)
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  11. Allen N. Berger & Nathan H. Miller & Mitchell A. Petersen & Raghuran G. Rajan & Jeremy C. Stein, 2002. "Does function follow organizational form? evidence from the lending practices of large and small banks," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 383-400.
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  12. Peek, Joe & Rosengren, Eric S, 1997. "The International Transmission of Financial Shocks: The Case of Japan," American Economic Review, American Economic Association, vol. 87(4), pages 495-505, September. [Downloadable!] (restricted)
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  13. Frankel, Jeffrey & Schmukler, Sergio & Serven, Luis, 2000. "Global transmission of interest rates : monetary independence and the currency regime," Policy Research Working Paper Series 2424, The World Bank. [Downloadable!]
  14. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  15. Frankel, Jeffrey & Schmukler, Sergio L. & Serven, Luis, 2004. "Global transmission of interest rates: monetary independence and currency regime," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 701-733, September. [Downloadable!] (restricted)
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  16. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March. [Downloadable!] (restricted)
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  17. Jane Ihrig & Steven B. Kamin & Deborah Lindner & Jaime Marquez, 2007. "Some simple tests of the globalization and inflation hypothesis," International Finance Discussion Papers 891, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  18. Francisco F. Vázquez & Alicia García-Herrero, 2007. "International Diversification Gains and Home Bias in Banking," IMF Working Papers 07/281, International Monetary Fund. [Downloadable!]
  19. Kashyap, Anil K. & Stein, Jeremy C., 1995. "The impact of monetary policy on bank balance sheets," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 151-195, June. [Downloadable!] (restricted)
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  20. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2004. "The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility," NBER Working Papers 10396, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September. [Downloadable!] (restricted)
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  22. Joe Peek & Eric S. Rosengren, 2000. "Collateral Damage: Effects of the Japanese Bank Crisis on Real Activity in the United States," American Economic Review, American Economic Association, vol. 90(1), pages 30-45, March. [Downloadable!] (restricted)
  23. Janet L. Yellen, 2006. "Monetary policy in a global environment," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Jun 2. [Downloadable!]
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  24. Kim, Soyoung, 2001. "International transmission of U.S. monetary policy shocks: Evidence from VAR's," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 339-372, October. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fabian Valencia, 2008. "Banks' Precautionary Capital and Credit Crunches," IMF Working Papers 08/248, International Monetary Fund. [Downloadable!]
  2. Patrick Honohan, 2008. "Risk Management and the Costs of the Banking Crisis," The Institute for International Integration Studies Discussion Paper Series iiisdp262, IIIS. [Downloadable!]
  3. Patrick Honohan, 2008. "Bank Failures: The Limitations of Risk Modelling," The Institute for International Integration Studies Discussion Paper Series iiisdp263, IIIS. [Downloadable!]
  4. Philip R. Lane, 2008. "EMU and Financial Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp272, IIIS. [Downloadable!]
  5. Nicola Cetorelli & Linda S. Goldberg, 2009. "Globalized banks: lending to emerging markets in the crisis," Staff Reports 377, Federal Reserve Bank of New York. [Downloadable!]
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This page was last updated on 2009-11-27.

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