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International Banking and Liquidity Risk Transmission: Evidence from Hong Kong S.A.R

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  • Eric Wong
  • Andrew Tsang
  • Steven Kong

Abstract

This study provides four findings regarding the international transmission of liquidity risk through global banks’ branches in host countries. First, we find that when home-country liquidity risk emerges, parent banks with higher shares of stable funding would sustain higher loan growth for their branches in Hong Kong S.A.R. than other foreign bank branches (FBBs) in Hong Kong S.A.R. Second, those FBBs that are net users (suppliers) of internal funding are found to have stronger (lower) loan growth than their peers in the face of liquidity risk. Third, these drivers of cross-sectional differences in loan growth become not important for the risk transmission when banks access official lending facilities. Finally, FBBs are more sensitive to U.S.-dollar liquidity risk than home-country liquidity risk.

Suggested Citation

  • Eric Wong & Andrew Tsang & Steven Kong, 2015. "International Banking and Liquidity Risk Transmission: Evidence from Hong Kong S.A.R," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(3), pages 515-541, November.
    • Handle: RePEc:pal:imfecr:v:63:y:2015:i:3:p:515-541
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    Cited by:

    1. Nicola Cetorelli & Linda S. Goldberg, 2016. "Organizational Complexity and Balance Sheet Management in Global Banks," NBER Working Papers 22169, National Bureau of Economic Research, Inc.

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