nep-ifn New Economics Papers
on International Finance
Issue of 2016‒05‒08
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Cross-border regulatory spillovers: How much? How important? What sectors? Lessons from the United Kingdom By Hills, Robert; Reinhardt, Dennis; Sowerbutts, Rhiannon; Wieladek, Tomasz
  2. Foreign Branches of US Global Banks: Geography, Balance Sheet Structure and Contagion By Carmela D'Avino
  3. Does the Yuan’s Overseas Expansion Increase the Currency Exposure of Chinese Financial Firms? By Cuestas, Juan Carlos; Huang, Ying; Tang, Bo

  1. By: Hills, Robert (Bank of England); Reinhardt, Dennis (Bank of England); Sowerbutts, Rhiannon (Bank of England); Wieladek, Tomasz (Barclays Capital)
    Abstract: This paper forms the United Kingdom’s contribution to the International Banking Research Network’s project examining the cross-border spillovers of prudential policy actions, where each participant in the network uses proprietary bank-level data available to central banks. We examine whether UK-owned banks’ domestic lending is affected by prudential actions in other countries where they have exposures. We also examine the impact of a change in prudential policy in a foreign-owned UK-resident bank’s home jurisdiction on its lending to the United Kingdom. Our results suggest that prudential actions taken abroad do not have significant spillover effects on bank lending in the UK economy as a whole. But there are more granular effects: for instance, when a foreign authority tightens loan-to-value standards, UK affiliates of banks owned from that country expand their lending to UK households and corporates.
    Keywords: Macroprudential policies; bank lending; spillovers; capital flows
    JEL: F32 F34 G21
    Date: 2016–04–22
  2. By: Carmela D'Avino
    Abstract: This paper contributes to the understanding of the international financial linkages created by US banks by looking at the geographical composition and structure of the balance sheet of foreign branches. The empirical investigation, which is based on a novel dataset containing balance sheet statistics of foreign branches by country of location, has a threefold objective. First, it provides geographical mapping and distribution of foreign activities of branches by host country by accounting also for those balance sheet items not included in the available international banking statistics, i.e. gross interoffice positions and transactions with third-countries. Secondly, this paper presents a classification of host countries by balance sheet structure of foreign offices. A partioning-based clustering analysis allows to identify 4 distinct types of foreign branches: liquidity importers, liquidity exporters, liquidity conduits and locally implanted. Lastly, the paper provides evidence in support of the fact that US branches’ banking foreign operations are a good measure of financial integration with US as they can significantly explain business cycle synchronisation between the host country and the US during the Great Recession.
    Keywords: US global banks, Foreign branches, Balance sheet structure, Contagion
    JEL: F33 F34 F36 F42 C23 C49
    Date: 2016–04
  3. By: Cuestas, Juan Carlos; Huang, Ying; Tang, Bo
    Abstract: This study investigates both the symmetric and asymmetric exchange rate exposures of Chinese financial firms in the context of an accelerated pace of RMB internationalisation. We find that an increasing number of Chinese financial firms are exposed to negative symmetric effects from the change in the trade weighted effective exchange rate. The evidence concerning asymmetries shows that after 2009 negative exchange rate shocks have a stronger effect on exposures than positive shocks. Changes in the bilateral exchange rate also have a significant impact on firm returns, given the importance of the USD in the effective exchange rate. Further, the empirical analysis reveals that exchange rate exposures are associated with firm level characteristics including total assets, earnings per share, net cash flows, investment incomes, total liabilities and firm size. Finally, we suggest that domestic and foreign stakeholders need to pay close attention to the movement of the Yuan’s exchange rate before it becomes completely convertible.
    Keywords: exchange rate exposure, RMB internationalisation, Chinese financial firms.
    JEL: C58 F3 F31 G1 G15
    Date: 2016–04–18

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