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What determines the composition of international bank flows?

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Abstract

Several recent studies document that the extent to which banks transmit shocks across borders depends on the type of foreign activities these banks engage in. This paper proposes a model to explain the composition of banks? foreign activities, distinguishing between international interbank lending, intrabank lending, and cross-border lending to foreign firms. The model shows that the different activities are jointly determined and depend on the efficiencies of countries? banking sectors, differences in the return on loans across countries, and impediments to foreign bank operations. Specifically, the model predicts that international interbank lending increases and lending to foreign nonbanking firms declines when banks? barriers to entry rise, a hypothesis supported by German bank-level data. This result suggests that policies that restrict the operations of foreign banks in a country may move activity onto international interbank markets, with the potential to make domestic credit overall less resilient to financial distress.

Suggested Citation

  • Cornelia Kerl & Friederike Niepmann, 2014. "What determines the composition of international bank flows?," Staff Reports 681, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:681
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    Cited by:

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    3. Stijn Claessens & Neeltje van Horen, 2015. "The Impact of the Global Financial Crisis on Banking Globalization," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(4), pages 868-918, November.
    4. Jeremy Greenwood & Juan Sanchez & Cheng Wang, 2013. "Quantifying the Impact of Financial Development on Economic Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 194-215, January.
    5. Sebastian Doerr & Philipp Schaz, 2018. "Bank loan supply during crises: the importance of geographic diversification," ECON - Working Papers 288, Department of Economics - University of Zurich, revised Mar 2019.

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    More about this item

    Keywords

    global banks; transmission of shocks; international bank flows; interbank market;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F30 - International Economics - - International Finance - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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