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Banking Globalization, Monetary Transmission, and the Lending Channel

  • Nicola Cetorelli
  • Linda S. Goldberg

The globalization of banking in the United States is influencing the monetary transmission mechanism both domestically and in foreign markets. Using quarterly information from all U.S. banks filing call reports between 1980 and 2005, we find evidence for the lending channel for monetary policy in large banks, but only those banks that are domestically-oriented and without international operations. We show that the large globally-oriented banks rely on internal capital markets with their foreign affiliates to help smooth domestic liquidity shocks. We also show that the existence of such internal capital markets contributes to an international propagation of domestic liquidity shocks to lending by affiliated banks abroad. While these results imply a substantially more active lending channel than documented in the seminal work of Kashyap and Stein (2000), the lending channel within the United States is declining in strength as banking becomes more globalized.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14101.

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Date of creation: Jun 2008
Date of revision:
Handle: RePEc:nbr:nberwo:14101
Note: IFM ME
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  9. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
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  19. Alicia García-Herrero & Francisco F. Vázquez, 2007. "International Diversification Gains and Home Bias in Banking," IMF Working Papers 07/281, International Monetary Fund.
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