nep-ifn New Economics Papers
on International Finance
Issue of 2014‒12‒08
five papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. International banking and liquidity risk transmission: Lessons from across countries By Buch, Claudia M.; Goldberg, Linda
  2. Capital Flow Deflection By Paolo Giordani; Michele Ruta; Hans Weisfeld; Ling Zhu
  3. The Impact of the Global Financial Crisis on Banking Globalization By Stijn Claessens; Neeltje van Horen
  4. The international transmission of shocks: foreign bank branches in Hong Kong during crises By Kwan, Simon H.; Wong, Eric T.C.; Hui, Cho-hoi
  5. Oil prices, exchange rates and asset prices By Fratzscher, Marcel; Schneider, Daniel; Van Robays, Ine

  1. By: Buch, Claudia M.; Goldberg, Linda
    Abstract: Activities of international banks have been at the core of discussions on the causes and effects of the international financial crisis. Yet, we know little about the actual magnitudes and mechanisms for transmission of liquidity shocks through international banks, including the reasons for heterogeneity in transmission across banks. The International Banking Research Network (IBRN), established in 2012, brings together researchers from around the world with access to micro-data on individual banks to analyze issues pertaining to global banks. This paper summarizes the common methodology and results of empirical studies conducted in 11 countries to explore liquidity risk transmission. Among the main results is, first, that explanatory power of the empirical model is higher for domestic lending than for international lending. Second, how liquidity risk affects bank lending depends on the whether the banks are drawing on official sector liquidity facilities. Third, liquidity management across global banks can be important for liquidity risk transmission into lending. Fourth, there is substantial heterogeneity in the balance sheet characteristics that affect banks' responses to liquidity risk. Overall, bank balance sheet characteristics matter for differentiating lending responses across banks mainly in the realm of cross-border lending.
    Keywords: International banking,liquidity,transmission,central bank liquidity,uncertainty,regulation,crises
    JEL: G01 F34 G21
    Date: 2014
  2. By: Paolo Giordani; Michele Ruta; Hans Weisfeld; Ling Zhu
    Abstract: This paper focuses on the coordination problem among borrowing countries imposing controls on capital infl ows. In a simple model of capital flows and controls, we show that inflow restrictions distort international capital flows to other countries and that, in turn, such capital flow deflection may lead to a policy response. We then test the theory using data on inflow restrictions and gross capital inflows for a large sample of developing countries between 1995 and 2009. Our estimation yields strong evidence that capital controls deflect capital flows to other borrowing countries with similar economic characteristics. Notwithstanding these strong cross-border spillover effects, we do not find evidence of a policy response.
    Keywords: Capital flows;Capital controls;Capital inflows;Spillovers;Econometric models;capital flows, capital controls, cross-border spillovers, policy response.
    Date: 2014–08–08
  3. By: Stijn Claessens; Neeltje van Horen
    Abstract: Although cross-border bank lending has fallen sharply since the crisis, extending our bank ownership database from 1995-2009 up to 2013 shows only limited retrenchment in foreign bank presence. While banks from OECD countries reduced their foreign presence (but still represent 89% of foreign bank assets), those from emerging markets and developing countries expanded abroad and doubled their presence. Especially advanced countries hit by a systemic crisis reduced their presence abroad, with far flung and relatively small investments more likely to be sold. Poorer and slower growing countries host fewer banks today, while large investments less likely expanded. Conversely, faster host countries’ growth and closeness to potential investors meant more entry. Lending by foreign banks locally grew more than cross-border bank claims did for the same home-host country combination, and each was driven by different factors. Altogether, our evidence shows that global banking is not becoming more fragmented, but rather is going through some important structural transformations with a greater variety of players and a more regional focus.
    Keywords: Cross-border banking;Loans;Foreign banks;Globalization;International banking;Global Financial Crisis 2008-2009;Foreign banks, financial globalization, global financial crisis, cross-border banking, financial fragmentation
    Date: 2014–10–27
  4. By: Kwan, Simon H. (Federal Reserve Bank of San Francisco); Wong, Eric T.C. (Hong Kong Monetary Authority); Hui, Cho-hoi (Hong Kong Monetary Authority)
    Abstract: The international transmission of shocks in the global financial system has always been an important issue for policy makers. Different types of foreign shocks have different effects and policy implications. In this paper, we examine the effects of the recent U.S. financial crisis and the European sovereign debt crisis on foreign bank branches in Hong Kong. Unlike the literature on global banking that studies a global bank’s foreign operations from a home country perspective, our analysis uses foreign bank branches in Hong Kong and has a distinct host country perspective, which would seem more relevant to the host country policy makers. We find global banks using the foreign branches in Hong Kong as a funding source during the liquidity crunch in home country, suggesting that global banks manage their liquidity risk globally. After the central bank at home country introduced liquidity facility to relieve funding pressure, the effect disappeared. We also find strong evidence that foreign branches originated from crisis countries lend significantly less in Hong Kong relative to their controls, suggesting the presence of the lending channel in the transmission of shocks from the home country to the host country.
    Keywords: shocks transmission; foreign banks; financial crisis; liquidity management
    JEL: G01 G21
    Date: 2014–10
  5. By: Fratzscher, Marcel; Schneider, Daniel; Van Robays, Ine
    Abstract: This paper takes a financial market perspective in examining the relationship between oil prices, the US dollar and asset prices, and it exploits the heteroskedasticity for the identification of causality in a multifactor model. It finds a bidirectional causality between the US dollar and oil prices since the early 2000s. Moreover, both oil prices and the US dollar are significantly affected by changes in equity market returns and risk. By contrast, oil prices did not react to changes in these financial assets before 2001. The paper provides evidence that this may be explained by the increased use of oil as a financial asset over the past decade, which intensified the link between oil and other assets. The model can account well for the strong and rising negative correlation between oil prices and the US dollar since the early 2000s, with risk shocks and the financialisation process of oil prices explaining most of the strengthening of this correlation. JEL Classification: F30, G15
    Keywords: asset prices, exchange rates, identification, oil prices, time-varying correlation, US dollar
    Date: 2014–07

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