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The risk sensitivity of global liquidity flows: heterogeneity, evolution and drivers

Author

Listed:
  • Stefan Avdjiev

    (Bank for International Settlements)

  • Leonardo Gambacorta

    (Bank for International Settlements)

  • Linda S. Goldberg

    (Federal Reserve Bank of New York)

  • Stefano Schiaffi

    (Bank of Italy)

Abstract

The period after the Global Financial Crisis (GFC) was characterized by a considerable risk migration within global liquidity flows, away from cross-border bank lending towards international bond issuance. We show that the post-GFC shifts in the risk sensitivities of global liquidity flows are related to the tightness of the (capital and liquidity) constraints faced by international (bank and non-bank) lenders and to the migration of borrowers across funding sources. We show that the risk sensitivity of global liquidity flows is higher when funding is provided by financial intermediaries that are facing greater balance sheet (capital and leverage) constraints. We also provide evidence that the post-GFC migration of borrowers from cross-border loans towards international debt securities was associated with a decline in the risk sensitivity of global liquidity flows and their main components.

Suggested Citation

  • Stefan Avdjiev & Leonardo Gambacorta & Linda S. Goldberg & Stefano Schiaffi, 2025. "The risk sensitivity of global liquidity flows: heterogeneity, evolution and drivers," Questioni di Economia e Finanza (Occasional Papers) 973, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_973_25
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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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