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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

  • Reinhardt, Dennis

    ()

    (Bank of England)

  • Riddiough, Steven

    ()

    (Warwick Business School)

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funding between arms-length (interbank) and related (intragroup) funding, and show that while interbank funding is withdrawn when global risk is high, intragroup funding remains stable during these periods, despite being more volatile on average.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.

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Paper provided by Bank of England in its series Bank of England working papers with number 498.

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Length: 51 pages
Date of creation: 17 Apr 2014
Date of revision:
Handle: RePEc:boe:boeewp:0498
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  1. Lukas Menkhoff & Lucio Sarno & Maik Schmeling & Andreas Schrimpf, 2012. "Carry Trades and Global Foreign Exchange Volatility," Journal of Finance, American Finance Association, vol. 67(2), pages 681-718, 04.
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  8. de Haas, Ralph & van Horen, Neeltje, 2012. "International Shock Transmission after the Lehman Brothers Collapse. Evidence from Syndicated Lending," MPRA Paper 36001, University Library of Munich, Germany.
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  13. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
  14. Fenghua Song & Anjan V. Thakor, 2007. "Relationship Banking, Fragility, and the Asset-Liability Matching Problem," Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 2129-2177, November.
  15. Viral V Acharya & Philipp Schnabl, 2010. "Do Global Banks Spread Global Imbalances? Asset-Backed Commercial Paper during the Financial Crisis of 2007–09," IMF Economic Review, Palgrave Macmillan, vol. 58(1), pages 37-73, August.
  16. Kristin J. Forbes & Francis E. Warnock, 2011. "Capital Flow Waves: Surges, Stops, Flight, and Retrenchment," NBER Working Papers 17351, National Bureau of Economic Research, Inc.
  17. Calomiris, Charles W., 1999. "Building an incentive-compatible safety net," Journal of Banking & Finance, Elsevier, vol. 23(10), pages 1499-1519, October.
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