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What are the consequences of global banking for the international transmission of shocks? A quantitative analysis∗

Author

Listed:
  • Jose L. Fillat

    (Federal Reserve Bank of Boston)

  • Stefania Garetto

    (Boston University, CEPR, and NBER)

  • Arthur V. Smith

    (Boston University)

Abstract

The global financial crisis of 2008 was followed by a wave of regulatory reforms that affected large banks, especially those with a global presence. These reforms were reactive to the crisis. In this paper we propose a structural model of global banking that can be used proactively to perform counterfactual analysis on the effects of alternative regulatory policies. The structure of the model mimics the US regulatory framework and highlights the organizational choices that banks face when entering a foreign market: branching versus subsidiarization. When calibrated to match moments from a sample of European banks, the model is able to replicate the response of the US banking sector to the European sovereign debt crisis. Our counterfactual analysis suggests that pervasive subsidiarization, higher capital requirements, or ad hoc monetary policy interventions would have mitigated the effects of the crisis on US lending.

Suggested Citation

  • Jose L. Fillat & Stefania Garetto & Arthur V. Smith, 2018. "What are the consequences of global banking for the international transmission of shocks? A quantitative analysis∗," Boston University - Department of Economics - Working Papers Series WP2019-01, Boston University - Department of Economics, revised Oct 2018.
    • Handle: RePEc:bos:wpaper:wp2019-001
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    References listed on IDEAS

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    1. Jose M Berrospide & Ricardo Correa & Linda S Goldberg & Friederike Niepmann, 2017. "International Banking and Cross-Border Effects of Regulation: Lessons from the United States," International Journal of Central Banking, International Journal of Central Banking, vol. 13(2), pages 435-476, March.
    2. Temesvary, Judit & Ongena, Steven & Owen, Ann L., 2018. "A global lending channel unplugged? Does U.S. monetary policy affect cross-border and affiliate lending by global U.S. banks?," Journal of International Economics, Elsevier, vol. 112(C), pages 50-69.
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    7. Jonathan Fiechter & Ms. Inci Ötker & Ms. Anna Ilyina & Michael Hsu & Mr. Andre O Santos & Jay Surti, 2011. "Subsidiaries or Branches: Does One Size Fit All?," IMF Staff Discussion Notes 2011/004, International Monetary Fund.
    8. Nicola Cetorelli & Linda S Goldberg, 2011. "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(1), pages 41-76, April.
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    Cited by:

    1. Albertazzi, Ugo & Cimadomo, Jacopo & Maffei-Faccioli, Nicolò, 2021. "Foreign banks and the doom loop," Working Paper Series 2540, European Central Bank.
    2. Chenzi Xu, 2022. "Reshaping Global Trade: The Immediate and Long-Run Effects of Bank Failures [“Shift-Share Designs: Theory and Inference,”]," The Quarterly Journal of Economics, Oxford University Press, vol. 137(4), pages 2107-2161.
    3. Pierre-Richard Agénor & Timothy P. Jackson & Luiz Pereira da Silva, 2020. "Cross-Border Regulatory Spillovers and Macroprudential Policy Coordination," Working Papers 202028, University of Liverpool, Department of Economics.
    4. Iñaki Aldasoro & John Caparusso & Yingyuan Chen, 2022. "Global banks' local presence: a new lens," BIS Quarterly Review, Bank for International Settlements, March.

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    More about this item

    Keywords

    global banks; banking regulation; shock transmission.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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