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on International Finance |
| By: | Beck, Roland; Schmitz, Martin; Coppola, Antonio; Lewis, Angus; Maggiori, Matteo; Schreger, Jesse |
| Abstract: | We assess Euro Area financial integration correcting for the role of “onshore offshore financial centers” (OOFCs) within the Euro Area. The OOFCs of Luxembourg, Ireland, and the Netherlands serve dual roles as both hubs of investment fund intermediation and centers of securities issuance by foreign firms. We provide new estimates of Euro Area countries’ bilateral portfolio investments which look through both roles, attributing the wealth held via investment funds to the underlying holders and linking securities issuance to the ultimate parent firms. Our new estimates show that the Euro Area is less financially integrated than it appears, both within the currency union and vis-à-vis the rest of the world. While official data suggests a sharp decline in portfolio home bias for Euro Area countries relative to other developed economies following the introduction of the euro, we demonstrate that this pattern only remains true for bond portfolios, while it is artificially generated by OOFC activities for equity portfolios. Further, using new administrative evidence on the identity of non-Euro Area investors in OOFC funds, we document that the bulk of the positions constituting missing wealth in international financial accounts are now accounted for by United Kingdom counterparts. JEL Classification: F3, F4, G2, G3, H26 |
| Keywords: | Capital Markets Union, financial integration, home bias |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20243007 |
| By: | Christian Friedrich; Hanno Friedrich; Nick Lawrence; Javier Cortes Orihuela; Phoebe Tian |
| Abstract: | Over the past decade, the six largest Canadian banks held an increasingly greater share of their assets and liabilities abroad, linking the Canadian banking system more closely to economic and financial developments elsewhere in the world. In 2023, the share of Canadian banks’ foreign assets and liabilities amounted to around 50%, with foreign exposures even exceeding domestic ones for some balance sheet items and calculations. Using a combination of regulatory and commercial data sources, we document Canadian banks’ foreign activities and provide an overview of potential vulnerabilities that may be associated with them. The following facts emerge: First, Canadian banks’ foreign activities differ considerably from their domestic ones. While Canadian banks engage domestically mostly with real sector entities, such as households and non-financial corporations, their most common counterparties abroad are non-bank financial institutions (NBFIs). To the extent that NBFIs or their behaviours might be less known to Canadian banks—for example, because of information asymmetries— a considerable exposure to such entities could constitute a potential vulnerability. Second, Canadian banks have sizable foreign currency and foreign country exposure to the US dollar and the United States, but also notable exposures to other currencies and countries. Third, we document the presence of an indirect foreign exposure channel for Canadian banks through lending to internationally exposed firms, even if these firms are domiciled in Canada and borrow in Canadian dollars. Lastly, we present a case study highlighting how Canadian banks have expanded internationally at times when banks of many other countries retreated. |
| Keywords: | Financial institutions; International financial markets; Financial stability; International topics |
| JEL: | F21 F23 F31 F32 G21 G23 G3 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-1 |
| By: | J. Scott Davis; Andrei Zlate |
| Abstract: | This paper looks at the effect of fluctuations in the global financial cycle on real exchange rates (RER). We show that, on average, a downturn in the global financial cycle leads to RER depreciation relative to the U.S. dollar. However, quantitatively there is considerable heterogeneity in the RER responses among advanced, emerging and developing economies; between net creditor and net debtor countries; and also over time. Prior to 2007, the global financial cycle had less effect on advanced than on emerging market economies' RER, whereas post-2007 the effect was about the same in the two groups of countries. Finally, we decompose the RER changes into changes in the nominal exchange rate and changes in aggregate price levels. We find that in advanced economies, nearly all RER adjustment occurred through nominal exchange rates throughout the sample period. In the emerging and developing economies, the RER adjustment was mixed prior to 2007, when changes in the RER were driven by both nominal exchange rate changes and inflation differentials, whereas nominal exchange rate adjustments dominated post-2007. |
| Keywords: | global financial cycle; real exchange rates |
| JEL: | F3 F4 |
| Date: | 2024–11–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:99214 |