nep-ifn New Economics Papers
on International Finance
Issue of 2015‒02‒28
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. The impact of the global financial crisis on banking globalization By Stijn Claessens ; Neeltje van Horen
  2. International Liquidity CAPM By Philippe Mueller ; Gyuri Venter ; Andrea Vedolin ; Aytek Malkhozov
  3. What Drives Bank-Intermediated Trade Finance? Evidence from Cross-Country Analysis By Jose Maria Serena Garralda ; Garima Vasishtha

  1. 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: foreign banks; financial globalization; global financial crisis; cross-border banking; financial fragmentation
    JEL: F21 F23 G21
    Date: 2015–02
  2. By: Philippe Mueller (London School of Economics ); Gyuri Venter (Copenhagen Business School ); Andrea Vedolin (London School of Economics ); Aytek Malkhozov (McGill University )
    Abstract: In this paper we study how funding constraints affect asset prices internationally. We build an equilibrium model with multiple countries where investors face margin constraints, and derive an international funding-liquidity-adjusted CAPM. In particular, the model has implications for (i) the global and local liquidity effect on asset prices in the time series, and (ii) for the pricing of global and local liquidity risk in the cross-section of international assets beyond market risk. To test the model, we construct daily funding liquidity proxies for six different countries and decompose them into one global and six country-specific indices. We then assess whether funding risk is priced in the cross-section of international stock returns. In line with the theoretical predictions, we find that holding betas constant, stocks with higher illiquidity earn higher alphas and Sharpe ratios. A trading strategy that is long high illiquidity to beta ratio stocks and short low illiquidity to beta ratio stocks (BAIL) earns significant positive risk-adjusted returns and outperforms a simple betting-against beta strategy. In the time-series we find that global funding risk is an economically and statistically highly significant predictor of BAIL.
    Date: 2014
  3. By: Jose Maria Serena Garralda ; Garima Vasishtha
    Abstract: Empirical work on the underlying causes of the recent dislocations in bank-intermediated trade finance has been limited by the poor availability of hard data. This paper analyzes the key determinants of bank-intermediated trade finance using a novel data set covering ten banking jurisdictions. It focuses on the role of global factors as well as country-specific characteristics in driving trade finance. The results indicate that country-specific variables, such as growth in trade flows and the funding availability for domestic banks, as well as global financial conditions and global imports growth, are important determinants of trade finance. These results are robust to different model specifications. Further, we do not find that trade finance is more sensitive to global financial conditions than other loans to non-bank entities.
    Keywords: International topics; International financial markets; Econometric and statistical methods
    JEL: F14 F19
    Date: 2015

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