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Foreign Banks, Liquidity Shocks, and Credit Stability

Author

Listed:
  • Daniel Belton
  • Leonardo Gambacorta
  • Sotirios Kokas
  • Raoul Minetti

Abstract

This paper investigates whether foreign banks help mitigate the effects of domestic liquidity shocks by exploiting a policy-induced shock to the U.S. wholesale market for liquidity and matched bank-syndicated loan data. We find that, following the 2011 Federal Deposit Insurance Corporation (FDIC) regulatory change to the cost of wholesale liquidity, foreign banks, which faced a relatively positive liquidity shock, accumulated more reserves by engaging in liquidity hoarding, but did not expand their lending. These responses are more pronounced for foreign banks affiliated with complex global bank holding companies and whose parent banking systems experienced distress at the moment of the shock. (JEL G21, G28, E44)Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Daniel Belton & Leonardo Gambacorta & Sotirios Kokas & Raoul Minetti, 2023. "Foreign Banks, Liquidity Shocks, and Credit Stability," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 12(1), pages 131-169.
    • Handle: RePEc:oup:rcorpf:v:12:y:2023:i:1:p:131-169.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfab020
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    Cited by:

    1. Yang, Daniel G., 2025. "Foreign bank branch participation and U.S. syndicated loan contract design," Journal of Accounting and Economics, Elsevier, vol. 79(1).
    2. Cyril Monnet & Hyun Song Shin & Jon Frost & Leonardo Gambacorta & Raphael Auer & Tara Rice, 2022. "Central Bank Digital Currencies: Motives, Economic Implications, and the Research Frontier," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 697-721, August.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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