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International Banking and Liquidity Risk Transmission: Lessons from Across Countries

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  • Claudia M Buch
  • Linda S Goldberg

Abstract

Activities of international banks are at the core of discussions on the causes and effects of the global financial crisis. The International Banking Research Network (IBRN), established in 2012, brings together researchers from around the world with access to microdata on individual banks to investigate key issues. This paper summarizes the common methodology and results of case studies conducted in 11 countries to analyze the impact of liquidity shocks on bank lending, both domestic and foreign. Four main insights are established. First, liquidity conditions affecting parent banks transmit into both the domestic and foreign lending of these banks. Second, the ex ante balance sheet composition of banks and banks’ business models influence their responses to liquidity risk. No single balance sheet characteristic consistently plays a role in liquidity risk transmission. Third, internal liquidity management within multinational banks can alter the domestic lending effects of liquidity risk. Fourth, the availability of official sector liquidity tends to reduce the adverse consequences of private liquidity conditions for bank lending during stress periods and to weaken the impact of bank balance sheet constraints.

Suggested Citation

  • Claudia M Buch & Linda S Goldberg, 2015. "International Banking and Liquidity Risk Transmission: Lessons from Across Countries," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(3), pages 377-410, November.
  • Handle: RePEc:pal:imfecr:v:63:y:2015:i:3:p:377-410
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    More about this item

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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