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Financial Intermediaries and the Changing Risk Sensitivity of Global Liquidity Flows

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Abstract

Global risk conditions, along with monetary policy in major advanced economies, have historically been major drivers of cross-border capital flows and the global financial cycle. So what happens to these flows when risk sentiment changes? In this post, we examine how the sensitivity to risk of global financial flows changed following the global financial crisis (GFC). We find that while the risk sensitivity of cross-border bank loans (CBL) was lower following the GFC, that of international debt securities (IDS) remained the same as before the GFC. Moreover, the changes in risk sensitivities of these flows were related to balance sheet constraints of financial institutions that were intermediating these flows.

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  • Stefan Avdjiev & Linda S. Goldberg, 2025. "Financial Intermediaries and the Changing Risk Sensitivity of Global Liquidity Flows," Liberty Street Economics 20250626, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:101162
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    File URL: https://libertystreeteconomics.newyorkfed.org/2025/06/financial-intermediaries-and-the-changing-risk-sensitivity-of-global-liquidity-flows/
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    Keywords

    global liquidity; international bank lending; international bond flows; emerging markets; advanced economies;
    All these keywords.

    JEL classification:

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

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