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

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  • Cetorelli, Nicola
  • Goldberg, Linda S.

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 show that parent banks, when hit by a funding shock, reallocate liquidity in the organization according to a locational pecking order. Affiliate locations that are important for the parent bank revenue streams are relatively protected from liquidity reallocations in the organization, while traditional funding locations are more extensively used to buffer shocks to the parent bank balance sheets.

Suggested Citation

  • Cetorelli, Nicola & Goldberg, Linda S., 2012. "Liquidity management of U.S. global banks: Internal capital markets in the great recession," Journal of International Economics, Elsevier, vol. 88(2), pages 299-311.
  • Handle: RePEc:eee:inecon:v:88:y:2012:i:2:p:299-311
    DOI: 10.1016/j.jinteco.2012.05.001
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    More about this item

    Keywords

    Bank; Global bank; Liquidity; Transmission; Internal capital market; Crisis;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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