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Global banks and international shock transmission: evidence from the crisis

  • Nicola Cetorelli
  • Linda S. Goldberg

Global banks played a significant role in transmitting the 2007-09 financial crisis to emerging-market economies. We examine adverse liquidity shocks on main developed-country banking systems and their relationships to emerging markets across Europe, Asia, and Latin America, isolating loan supply from loan demand effects. Loan supply in emerging markets across Europe, Asia, and Latin America was affected significantly through three separate channels: 1) a contraction in direct, cross-border lending by foreign banks; 2) a contraction in local lending by foreign banks' affiliates in emerging markets; and 3) a contraction in loan supply by domestic banks, resulting from the funding shock to their balance sheets induced by the decline in interbank, cross-border lending. Policy interventions, such as the Vienna Initiative introduced in Europe, influenced the lending-channel effects on emerging markets of shocks to head-office balance sheets.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 446.

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Date of creation: 2010
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Handle: RePEc:fip:fednsr:446
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  1. Frederic S Mishkin, 2009. "Why We Shouldn't Turn Our Backs on Financial Globalization," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 139-170, April.
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  10. Imbs, Jean, 2010. "The First Global Recession in Decades," CEPR Discussion Papers 7973, C.E.P.R. Discussion Papers.
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  14. Nicola Cetorelli & Linda S. Goldberg, 2008. "Banking globalization, monetary transmission, and the lending channel," Staff Reports 333, Federal Reserve Bank of New York.
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  16. Houston, Joel & James, Christopher & Marcus, David, 1997. "Capital market frictions and the role of internal capital markets in banking," Journal of Financial Economics, Elsevier, vol. 46(2), pages 135-164, November.
  17. Linda S Goldberg, 2009. "Understanding Banking Sector Globalization," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 171-197, April.
  18. Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking and the international policy response," BIS Working Papers 291, Bank for International Settlements.
  19. Niall Coffey & Warren B. Hrung & Hoai-Luu Nguyen & Asani Sarkar, 2009. "The global financial crisis and offshore dollar markets," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 15(Oct).
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