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Risks in U.S. bank international exposures

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  • Nicola Cetorelli
  • Linda S. Goldberg

Abstract

U.S. banks have substantial exposure to foreign markets such as Europe and Latin America. In this paper, we show how the amounts and forms of these exposures have evolved over time and note the changes in embodied risks taken through banks' cross-border activity, local claims, and derivative positions. Our findings vary with the type of U.S. bank. Compared with other banks, money-center banks tend to have a greater share of their assets in foreign exposures. Some of money-center banks' exposure to riskier countries, particularly Latin American countries, is achieved through the activities of local branches and subsidiaries that take on liabilities as well as assets, a strategy that reduces their bank transfer risk accordingly. As a share of total international exposures, the transfer risk assumed by money-center banks tends to be significantly lower than that of other banks.

Suggested Citation

  • Nicola Cetorelli & Linda S. Goldberg, 2006. "Risks in U.S. bank international exposures," Staff Reports 240, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:240
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    References listed on IDEAS

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    1. John Hawkins & Dubravko Mihaljek, 2001. "The banking industry in the emerging market economies: competition, consolidation and systemic stability: an overview," BIS Papers chapters,in: Bank for International Settlements (ed.), The banking industry in the emerging market economies: competition, consolidation and systemic stability, volume 4, pages 1-44 Bank for International Settlements.
    2. Linda S. Goldberg, 2007. "Financial sector FDI and host countries: new and old lessons," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 1-17.
    3. B. Gerard Dages & Linda S. Goldberg & Daniel Kinney, 2000. "Foreign and domestic bank participation in emerging markets: lessons from Mexico and Argentina," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 17-36.
    4. Bank for International Settlements, 2001. "The banking industry in the emerging market economies: competition, consolidation and systemic stability," BIS Papers, Bank for International Settlements, number 04, November.
    5. Jennifer S. Crystal & B. Gerard Dages & Linda S. Goldberg, 2001. "Does foreign ownership contribute to sounder banks in emerging markets? the Latin American experience," Staff Reports 137, Federal Reserve Bank of New York.
    6. James V. Houpt, 1999. "International activities of U.S. banks and in U.S. banking markets," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Sep, pages 599-616.
    7. Linda S. Goldberg, 2002. "When Is U.S. Bank Lending to Emerging Markets Volatile?," NBER Chapters,in: Preventing Currency Crises in Emerging Markets, pages 171-196 National Bureau of Economic Research, Inc.
    8. David E. Palmer, 2000. "U.S. bank exposure to emerging-market countries during recent financial crises," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Feb, pages 81-96.
    9. Michael P. Dooley & Jeffrey A. Frankel, 2003. "Managing Currency Crises in Emerging Markets," NBER Books, National Bureau of Economic Research, Inc, number dool03-1, January.
    10. Eric Santor, 2007. "Contagion and the composition of Canadian banks' foreign asset portfolios: do financial crises matter?," CGFS Papers chapters,in: Bank for International Settlements (ed.), Research on global financial stability: the use of BIS international financial statistics, volume 29, pages 32-52 Bank for International Settlements.
    11. Sebastian Edwards & Jeffrey A. Frankel, 2002. "Preventing Currency Crises in Emerging Markets," NBER Books, National Bureau of Economic Research, Inc, number edwa02-2, January.
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    Cited by:

    1. Stijn Claessens, 2006. "Competitive Implications of Cross-Border Banking," World Scientific Book Chapters,in: Cross-Border Banking Regulatory Challenges, chapter 11, pages 151-181 World Scientific Publishing Co. Pte. Ltd..
    2. Bessler, Wolfgang & Kurmann, Philipp & Nohel, Tom, 2015. "Time-varying systematic and idiosyncratic risk exposures of US bank holding companies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 35(C), pages 45-68.
    3. Temesvary, Judit, 2015. "Foreign activities of U.S. banks since 1997: The roles of regulations and market conditions in crises and normal times," Journal of International Money and Finance, Elsevier, vol. 56(C), pages 202-222.

    More about this item

    Keywords

    Banks and banking; International ; International finance ; Bank investments ; Branch banks;

    JEL classification:

    • F39 - International Economics - - International Finance - - - Other
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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