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Global banking and the international transmission of shocks: A quantitative analysis

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  • Fillat, José L.
  • Garetto, Stefania
  • Corea-Smith, Arthur V.

Abstract

Regulatory reforms typically follow financial crises. We propose a model of global banking that can be used proactively to study alternative regulatory policies. The model mimics the US regulatory framework and highlights the organizational choices that banks face when entering a foreign market: branching versus subsidiarization. The model is able to replicate the response of the US banking sector to the European sovereign debt crisis. Counterfactual analysis suggests that pervasive subsidiarization, higher capital requirements, or an ad hoc monetary policy intervention would have avoided entirely the negative effects of the sovereign debt crisis on US lending. However, the same measures would have had limited effects in more severe scenarios.

Suggested Citation

  • Fillat, José L. & Garetto, Stefania & Corea-Smith, Arthur V., 2023. "Global banking and the international transmission of shocks: A quantitative analysis," Journal of International Economics, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:inecon:v:145:y:2023:i:c:s0022199623000946
    DOI: 10.1016/j.jinteco.2023.103808
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    More about this item

    Keywords

    Global banks; Banking regulation; Shock transmission;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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