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The two faces of cross-border banking flows: an investigation into the links between global risk, arms-length funding and internal capital markets

Author

Listed:
  • Reinhardt, Dennis

    () (Bank of England)

  • Riddiough, Steven

    () (Warwick Business School)

Abstract

We decompose gross cross-border bank-to-bank funding between arms-length (interbank) and related (intragroup) funding, and show that while interbank funding is withdrawn when global risk is high, intragroup funding remains stable during these periods, despite being more volatile on average. We disaggregate intragroup funding further and find advanced economy parent banks benefit from inflows during episodes of heightened global risk. However, we do not find evidence of significantly reduced intragroup funding to foreign affiliates during these periods. Our results are in contradiction with theoretical predictions on the behaviour of cross-border banking flows, and help explain why certain banking systems lost more cross-border bank-to-bank funding than others during the global financial crisis.

Suggested Citation

  • Reinhardt, Dennis & Riddiough, Steven, 2014. "The two faces of cross-border banking flows: an investigation into the links between global risk, arms-length funding and internal capital markets," Bank of England working papers 498, Bank of England.
  • Handle: RePEc:boe:boeewp:0498
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Pierre-Richard Agénor & K. Alper & L. Pereira da Silva, 2015. "External Shocks, Financial Volatility and Reserve Requirements in an Open Economy," Working Papers Series 396, Central Bank of Brazil, Research Department.
    2. Agénor, Pierre-Richard & Alper, Koray & Pereira da Silva, Luiz A., 2014. "Sudden floods, macroprudential regulation and stability in an open economy," Journal of International Money and Finance, Elsevier, vol. 48(PA), pages 68-100.
    3. Pierre-Richard Agénor & Pengfei Jia, 2015. "Capital Controls and Welfare with Cross-Border Bank Capital Flows," Centre for Growth and Business Cycle Research Discussion Paper Series 212, Economics, The Univeristy of Manchester.
    4. Hibiki Ichiue & Frederic Lambert, 2016. "Post-crisis International Banking; An Analysis with New Regulatory Survey Data," IMF Working Papers 16/88, International Monetary Fund.
    5. Kerl, Cornelia & Niepmann, Friederike, 2014. "What determines the composition of international bank flows?," Staff Reports 681, Federal Reserve Bank of New York.
    6. repec:spr:empeco:v:53:y:2017:i:1:d:10.1007_s00181-016-1221-2 is not listed on IDEAS
    7. Mary Everett, 2016. "Drivers of global liquidity and global bank flows: A view from the euro area," FIW Working Paper series 168, FIW.

    More about this item

    Keywords

    Cross-border banking flows; global risk; parent banks and foreign affiliates;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • 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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