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Liquidity Management of U.S. Global Banks: Internal Capital Markets in the Great Recession

In: Global Financial Crisis

  • Nicola Cetorelli
  • Linda S. Goldberg

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.

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This chapter was published in:
  • Charles Engel & Kristin Forbes & Jeffrey Frankel, 2012. "Global Financial Crisis," NBER Books, National Bureau of Economic Research, Inc, number enge11-2, July.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 13163.
    Handle: RePEc:nbr:nberch:13163
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