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International Banking and Liquidity Risk Transmission: Evidence from the United States

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  • Ricardo Correa
  • Linda S Goldberg
  • Tara Rice

Abstract

The balance sheet structure of U.S. banks influences how they respond to liquidity risks. We find the responses differ in fundamental ways across banks without foreign affiliates vs. those with foreign affiliates. Among banks without foreign affiliates, cross-sectional differences in response to liquidity risk depend on the banks’ shares of core deposit funding, Tier 1 capital, and outstanding credit commitments. Among banks with foreign affiliates, the global banks, liquidity management strategies as reflected in internal borrowing and lending across the global organization matter. This intrabank borrowing serves as a shock absorber and affects lending growth to domestic and foreign customers. Across all banks, the use of official sector emergency liquidity facilities tends to reduce the importance of ex ante differences in balance sheets as drivers of cross-sectional differences in lending in response to market liquidity risks.

Suggested Citation

  • Ricardo Correa & Linda S Goldberg & Tara Rice, 2015. "International Banking and Liquidity Risk Transmission: Evidence from the United States," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(3), pages 626-643, November.
  • Handle: RePEc:pal:imfecr:v:63:y:2015:i:3:p:626-643
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