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News

January 2017: New Issue of the Interconnectedness Newsletter

A new release of the interconnectedness newsletter available for download.


December 2016: FSB publishes progress report

and 2017 workplan to assess and address the decline in correspondent banking


December 2016: BIS Quarterly Review

With a special on stagnated international lending and new statistics on the development of central clearing.


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Open Call for Papers


EEA - ESEM

European Economic Association (EEA) and the Econometric Society
Lisbon, August 21 - 25 2017  
University of Lisbon
Keynotes: John Van Reenen (MIT Sloan School of Management), Amy Finkelstein (MIT), Philippe Aghion (College de France and London School of Economics)
Deadline CfP: February 15, 2017.



Regulating Financial Markets

Deutsche Bundesbank, SAFE, ZEW and CEPR
Frankfurt, June 12 – 13, 2017  
House of Finance, Goethe University Frankfurt
Keynote Speaker: Amit Seru (Stanford University)
Deadline CfP: February 15, 2017.



34th International Symposium on Money, Banking and Finance

Annual meeting of the European Research Group (GdRE) on Money Banking and Finance.
Paris, 5-6 July 2017  
University Paris Ouest Nanterre La Défense
Keynote Speakers: Philippe Bacchetta (HEC Lausanne and Swiss Finance Institute), Thorsten Beck (Cass Business School) and Michael Bordo (Rutgers University)
Deadline CfP: February 27, 2017



First Conference on Financial Stability

Banco de España together with Centro de Estudios Monetarios y Financieros (CEMFI)
Madrid, 24-25 May 2017  
Banco de España
Keynote Speaker: Mario Draghi (President of the European Central Bank)
Deadline CfP: February 28, 2017



IM-TCD-ND Workshop
International Macroeconomics and Capital Flows

Dublin, June 19-20, 2017
Trinity College Dublin and University of Notre Dame
Deadline CfP: March 1, 2017.



IFABS 2017 Oxford Conference

International Finance and Banking Society
"Towards an Integrated View of Financial Regulation: Key Lessons from the Crisis and Future Challenges"
Oxford, July 15-17, 2017  
Saďd Business School, University of Oxford
Keynotes: Nellie Liang (Board of Governors of the Federal Reserve System) and H Peyton Young (University of Oxford)
Deadline CfP: March 15, 2017.



European System of Central Banks' Day-Ahead Conference

Lisboa, August 20, 2017  
The European System of Central Banks (ESCB) and Banco de Portugal (BdP)
Deadline CfP: March 15, 2017.



Northern Finance Association Conference 2017

Halifax, September 17, 2017  
Northern Finance Association
Keynote Speaker: Robert L. McDonald (Northwestern University)
Deadline CfP: March 20, 2017



17th Doctoral Meetings in International Trade and International Finance

Villeneuve d’Ascq Cedex, June 26 - 27 2017  
The Research in International Economics and Finance (RIEF) network
Keynotes: Florin Bilbiie (Paris School of Economics and CEPR) and Kalina Manova (University of Oxford and CEPR)
Deadline CfP: March 20, 2017.



8th Economics & Finance Conference

The International Institute of Social and Economic Sciences
London, May 29 - June 1, 2017  
University of London
Deadline CfP: April 29, 2017



1st FENS Workshop "Financial Economics and Network Science"

Financial Economics and Networks Science
University of Greenwich - Department of International Business and Economics
London, May 19, 2017  
Old Royal Naval College
Keynote Speakers: Dr. Fabio Caccioli (UCL), Prof. Guido Caldarelli (IMT), Dr. Larry Su (Coventry University), Prof. Menelaos Karanasos (Brunel University)
Deadline CfP: April 16, 2017



3rd IWH-FIN-FIRE Workshop on "Challenges to Financial Stability"

The Halle Institute for Economic Research (IWH) – Member of the Leibniz Association and the FIRE research centre at Frankfurt School of Finance & Management
Halle (Saale), August 28-29, 2017  
Keynote Speakers: Charles Calomiris (Columbia Business School) and Martin Hellwig (Max Planck Institute for Research on Collective Goods, Bonn)
Deadline CfP: April 28, 2017



Fourth Annual Conference

The Yale Program on Financial Stability (YPFS)
New Haven, July 28, 2017  
Yale School of Management
Deadline CfP: May 15, 2017



Eighteenth Jacques Polak Annual Research Conference

"The Global Financial Cycle"
The International Monetary Fund
Washington DC, November 2-3, 2017  
Deadline CfP: June 1, 2017



Finance and Economic Growth in the Aftermath of the Crisis

Department of Economics, Management and Quantitative Methods (DEMM) of the University of Milan and the Department of Management (DM) of the Polytechnic University of Marche
Milan, September 11-13, 2017  
Keynote Speakers: Costas Azariadis (Washington University, St. Louis, USA), Guido Cozzi (University of St. Gallen, Switzerland), Herbert Dawid (University of Bielefeld, Germany), Domenico Delli Gatti (University of the Sacred Hearth, Italy), Stefano Neri (Bank of Italy)
Deadline CfP: June 15, 2017


Conferences


2017 Annual Meeting of the Midwest Finance Association

Chicago, March 1-4, 2017 
Mitchell A. Petersen, Todd Pulvino



7th Economics & Finance Conference

The International Institute of Social and Economic Sciences
Tel Aviv, March 7-11, 2017  
UCollege of Law and Business, Tel Aviv, Israel
Keynote Speaker: Prof. Robert John Aumann



10th Swiss Winter Conference on Financial Intermediation

Lenzerheide, March 12-15, 2017  
Martin Brown, Leonardo Gambacorta, Hans Gersbach and Steven Ongena



European Winter Finance Summit

Zürs, March 12-15, 2017  
University of Zurich, Vienna University, Gutmann Center, Vienna Graduate School of Finance



Annual Conference of the Swiss Society for Financial Market Research

Zurich, March 31, 2017



Spring 2017 Conference of the Multinational Finance Society

Lemesos, April 7-9, 2017  
Multinational Finance Society



Avoiding and Resolving Banking Crises

De Nederlandsche Bank, European Banking Center (Tilburg University) and CEPR
Amsterdam, April 20 and 21, 2017  



2nd Annual Spring Symposium in Financial Economics

London, April 24-25 2017 
CEPR and Imperial College Business School London



Workshop “Finance and Development“

German Institute for Economic Research
(DIW Berlin Deutsches Institut für Wirtschaftsforschung e.V.)
Berlin, Mai 4-5, 2017  



The 2017 Global Finance Conference

Hempstead, May 4-6, 2017  
The Global Finance Association and the Frank G. Zarb School of Business at Hofstra University in Hempstead, New York



SFS Cavalcade North America 2017 Conference

Vanderbilt University
Nashville, May 15 - 18, 2017  



RCEA Macro-Money-Finance Workshop

The Rimini Centre for Economic Analysis
Rimini, May 18 - 19, 2017  
Keynote Speaker: Karim Abadir (University College, London)



21st International Conference on Macroeconomic Analysis, and International Finance

Crete, May 25-27, 2017  



24th Annual Conference of the Multinational Finance Society

Lemesos, April 7-9, 2017  
Multinational Finance Society
Keynote Speakers: George Constantinides (University of Chicago), Gikas Hardouvelis (University of Piraeus) and Shyam Sunder (Yale School of Management)



8th Financial Markets and Corporate Governance

Information and Capital Markets
Wellington, April 21-22, 2017  
Victoria University of Wellington
Keynote Speakers: Katherine Schipper (Duke University), Richard Roll (Caltech), Peter Clarkson (University of Queensland), Renee Adams (University of New South Wales)



7th International Conference of the Financial Engineering and Banking Society

Financial Markets, Innovation and Regulation
Glasgow, June 1-3 June 2017  
Strathclyde Business School and the Centre for Financial Regulation and Innovation (CFRI)
Keynote Speakers: Jonathan Crook (University of Edinburgh Business School) and Raghavendra Rau(Cambridge Judge Business School)



2017 FIRS Conference

Lisbon, June 5-7, 2017  
The Financial Intermediation Research Society
Keynote speaker: Robert Townsend, MIT.



INFINITI 2017

Valčncia, June 12-13 2017  



6th MoFiR Workshop on Banking

Money and Finance Research group (MoFiR), the Bank of England and the European Bank for Reconstruction and Development (EBRD)
London, June 15 - 16 2017  



Marstrand Finance Conference

Centre for Finance, University of Gothenburg
Marstrand Island, June 17 and 19, 2017  



2017 Annual Meeting

Western Finance Association
Whistler, June 25-28 2017  



IBEFA Summer Meeting at the 2017 WEAI Conference

The International Banking, Economics and Finance Association (IBEFA) 
San Diego, June 25 - 29, 2017  
Deadline CfP: January 27, 2017.



IAAE 2017

Sapporo, June 26-29, 2017  
International Association for Applied Econometrics



CEBRA’s Boston Policy Workhsop

Boston, July 9, 2017  
The Central Bank Research Association (CEBRA) and the Federal Reserve Bank of Boston’s Research and Supervision Departments



2017 Annual Meeting of the Central Bank Research Association (CEBRA)

Hosted by the Bank of Canada
Featuring BIS, IMF, WB, and NBER special sessions
Ottawa, July 20-21, 2017  



44th European Finance Association (EFA) Annual Meeting

Mannheim, August 23 - 26, 2017 
European Finance Association (EFA)
Keynote speaker: Campbell R. Harvey (Duke University and NBER)


The International Banking Library

The International Banking Library is a web-based platform for the exchange of research on cross-border banking. It provides access to data sources, academic research, both theoretical and empirical on cross-border banking, as well as information on regulatory initiatives. The International Banking Library is associated with the International Banking Research Network (IBRN), a research network of Central Banks worldwide. The International Banking Library addresses researchers, policymakers, and students of international banking and economics in search of comprehensive information on international banking issues.


At the Research Frontier     

CEPR Working Paper

Authors: Ayhan Kose, Csilla Lakatos, Franziska Ohnsorge, Marc Stocker
Date: February 2017
Abstract: This paper analyzes the role of the United States in the global economy and examines the extent of global spillovers from changes in U.S. growth, monetary and fiscal policies, and uncertainty in its financial markets and economic policies. Developments in the U.S. economy, the world's largest, have effects far beyond its shores. A surge in U.S. growth could provide a significant boost to the global economy. Tightening U.S. financial conditions -whether due to contractionary U.S. monetary policy or other reasons- could reverberate across global financial markets, with adverse effects on some emerging market and developing economies that rely heavily on external financing. In addition, lingering uncertainty about the course of U.S. economic policy could have an appreciably negative effect on global growth prospects. While the United States plays a critical role in the world economy, activity in the rest of the world is also important for the United States.

CEPR Working Paper

Authors: Yusuf Soner Baskaya, Julian di Giovanni, Sebnem Kalemli-Ozcan, Mehmet Fatih Ulu
Date: February 2017
Abstract: We show that capital inflows are important drivers of domestic credit cycles using a firm-bank-loan level dataset for a representative emerging market. Instrumenting inflows by changes in global risk appetite (VIX), we find that a fall in VIX leads to a large decline in real borrowing rates and an expansion in credit supply. Estimates explain 40% of observed cyclical corporate credit growth. The OLS-elasticity of interest rates vis-ŕ-vis capital inflows is smaller than the IV-elasticity. Banks with higher noncore funding offer relatively lower rates to low net worth firms, but do not extend more credit to them given collateral constraints.

CEPR Working Paper

Authors: Yusuf Soner Baskaya, Julian di Giovanni, Sebnem Kalemli-Ozcan, José Luis Peydró and Mehmet Fatih Ulu
Date: February 2017
Abstract: We examine the role of the international credit channel in Turkey over 2005-2013. We show that larger, more capitalised banks with higher non-core liabilities increase credit supply when capital inflows are higher. This result is stronger for domestic banks relative to foreign banks and survives during the crisis period of post 2008, when foreign banks in general stop lending in emerging markets and retreat to their home countries. By decomposing capital inflows into bank and non-bank flows, we show the importance of domestic banks' external borrowing for domestic credit growth.

IMF Working Paper

Authors: Bennett W Sutton, Diva Singh and Luc Eyraud
Date: January 2017
Abstract: The timing is ripe to pursue greater regional financial integration in Latin America given the withdrawal of some global banks from the region and the weakening of growth prospects. Important initiatives are ongoing to foster financial integration. Failure to capitalize on this would represent a significant missed opportunity. This paper examines the scope for further global and regional financial integration in Latin America, based on economic fundamentals and comparisons to other emerging regions, and quantifies the potential macroeconomic gains that such integration could bring. The analysis suggests that closing the financial integration gap could boost GDP growth be ¼ - ¾ percentage point in these countries, on average.

BIS Note

Authors: Nikola Tarashev, Fabrizio Zampolli, Matthias Lörch and Anamaria Illes
Date: December 2016
Abstract: One aspect of resilience that is often underappreciated concerns financial imbalances. A resilient economy absorbs exogenous shocks and recovers quickly. But resilience also hinges on policies that contain the build-up of financial imbalances and mitigate the fallout of their correction, ie policies that tackle the financial cycle head on. This note discusses the nature of the financial cycle, its monitoring and the economic implications of booms and busts. It argues for a macro-financial stability framework, which accounts for both aspects of resilience. In this framework, prudential, monetary and fiscal policies complement each other in systematically leaning against the financial cycle.

CEPR Working Paper

Authors: Andrew Haldane, Matt Roberts-Sklar, Tomasz Wieladek and Chris Young
Date: December 2016
Abstract: In the past decade or so, a number of central banks have purchased assets financed by the creation of central bank reserves as a tool for loosening monetary policy - a policy often known as "quantitative easing" or "QE". The first half of the paper reviews the international evidence on the impact on financial markets and economic activity of this policy. It finds that these central bank balance sheet expansions had a discernible and significant impact on financial markets and the economy. The second half of the paper provides new empirical analysis on the macroeconomic impact of central bank balance sheet expansions, across time and countries. It finds three key results. First, it is only when central bank balance sheet expansions are used as a monetary policy tool that they have a significant macro-economic impact. Second, there is evidence for the US that the effectiveness of QE may vary over time, depending on the state of the economy and liquidity of the financial system. And third, QE can have strong spill-over effects cross-border, acting mainly via financial channels. For example, the impact of US QE on UK economic activity may be as large as the impact on US economic activity.

NBER Working Paper

Authors: Claudia M. Buch and Linda Goldberg
Date: December 2016
Abstract: The development of macroprudential policy tools has been one of the most significant changes in banking regulation in recent years. In this multi-study initiative of the International Banking Research Network, researchers from fifteen central banks and two international organizations use micro-banking data in conjunction with a novel dataset of prudential instruments to study international spillovers of prudential policy changes and their effects on bank lending growth. The collective analysis has three main findings. First, the effects of prudential instruments sometimes spill over borders through bank lending. Second, international spillovers vary across prudential instruments and are heterogeneous across banks. Bank-specific factors like balance sheet conditions and business models drive the amplitude and direction of spillovers to lending growth rates. Third, the effects of international spillovers of prudential policy on loan growth rates have not been large on average. However, our results tend to underestimate the full effect by focusing on adjustment along the intensive margin and by analyzing a period in which relatively few countries implemented country-specific macroprudential policies.

IMF Working Paper

Authors: Ms. Deniz O Igan, Ali M. Kutan and Ali Mirzae
Date: December 2016
Abstract: We examine the association between capital inflows and industry growth in a sample of 22 emerging market economies from 1998 to 2010. We expect more external finance dependent industries in countries that host more capital inflows to grow disproportionately faster. This is indeed the case in the pre-crisis period of 1998–2007, and is driven by debt, rather than equity, inflows. We also observe a reduction in output volatility but this association is more pronounced for equity, rather than debt, inflows. These relationships, however, break down during the crisis, hinting at the importance of an undisrupted global financial system for emerging markets to harness the growth benefits of capital inflows. In line with this observation, we also document that the inflows-growth nexus is stronger in countries with well-functioning banks.

NBER Working Paper

Author: Enrique G. Mendoza
Date: November 2016
Abstract: Macroprudential policy holds the promise of becoming a powerful tool for preventing financial crises. Financial amplification in response to domestic shocks or global spillovers and pecuniary externalities caused by Fisherian collateral constraints provide a sound theoretical foundation for this policy. Quantitative studies show that models with these constraints replicate key stylized facts of financial crises, and that the optimal financial policy of an ideal constrained-efficient social planner reduces sharply the magnitude and frequency of crises. Research also shows, however, that implementing effective macroprudential policy still faces serious hurdles. This paper highlights three of them: (i) complexity, because the optimal policy responds widely and non-linearly to movements in both domestic factors and global spillovers due to regime shifts in global liquidity, news about global fundamentals, and recurrent innovation and regulatory changes in world markets, (ii) lack of credibility, because of time-inconsistency of the optimal policy under commitment, and (iii) coordination failure, because a careful balance with monetary policy is needed to avoid quantitatively large inefficiencies resulting from violations of Tinbergen’s rule or strategic interaction between monetary and financial authorities.

CEPR Working Paper

Author: Olivier Accominotti
Date: November 2016
Abstract: In May-July 1931, a series of financial panics shook Central Europe before spreading to the rest of the world. This paper explores how the 1931 Central European crisis propagated to the London and New York financial centers; it also examines the role of cross-border banking linkages in international crisis transmission. Using archival bank-level data, I document US and British banks' asset-side exposure to the crisis region. The Continental crisis disturbed few US banks but endangered several British financial institutions and triggered severe stress in the London money market. Central European credits were mostly held by large and diversified commercial banks in the United States and by small and geographically specialized financial institutions in Britain. Differences in the market structure of the trade finance industry explain why the 1931 Central European crisis infected London banks but not New York banks.

CEPR Working Paper

Authors: Stephanie Schmitt-Grohé and Martin Uribe
Date: November 2016
Abstract: This paper contributes to a literature that studies optimal capital control policy in open economy models with pecuniary externalities due to flow collateral constraints. It shows that the optimal policy calls for capital controls to be lowered during booms and to be increased during recessions. Moreover, in the run-up to a financial crisis optimal capital controls rise as the contraction sets in and reach their highest level at the peak of the crisis. These findings are at odds with the conventional view that capital controls should be tightened during expansions to curb capital inflows and relaxed during contractions to discourage capital flight.

NBER Working Paper

Author: Graciela L. Kaminsky
Date: November 2016
Abstract: The ongoing slowdown in international capital flows has brought again to the attention the booms and bust cycles in international borrowing. Many suggest that capital flow bonanzas are excessive, ending in crises. One of the most frequently mentioned culprits are the cycles of monetary easing and tightening in the financial centers. More recently, the 2008 Subprime Crisis in the United States has also been blamed for the retrenchment in capital flows to both developed and developing countries. To further understand international capital flow cycles, I construct a new database on capital flows spanning the first episode of financial globalization from 1820 to 1931. During this episode, monetary policy in the financial center is constrained by the adherence to the Gold Standard, thus providing a benchmark for global cycles in the absence of an active role of central banks in the financial centers. Also, panics in the financial center are rare disasters that can only be studied in this longer episode of financial globalization. This paper presents the historical data with an example for Latin America.

CEPR Working Paper

Author: Dirk Schoenmaker
Date: November 2016
Abstract: The stability of a banking system ultimately depends on the strength and credibility of the fiscal backstop. While large countries can still afford to resolve large global banks on their own, small and medium-sized countries face a policy choice. This paper investigates the impact of resolution on banking structure. The financial trilemma model indicates that smaller countries can either conduct joint supervision and resolution of their global banks (based on single point of entry resolution) or reduce the size of their global banks and move to separate resolution of these banks' national subsidiaries (based on multiple point of entry resolution). Our empirical results show that the euro-area countries are heading for joint resolution based on burden sharing, while the UK and Switzerland have started a process of downsizing their banks.

BIS Working Paper

Author: Bruno Tissot
Date: October 2016
Abstract: The Great Financial Crisis of 2007-09 and its aftermath have emphasised the need for a global approach when assessing financial stability risks. One difficulty is that the traditional apparatus, especially the System of National Accounts (SNA), relies on the criterion of residency to capture statistical information within countries' boundaries. This paper analyses how to collect meaningful data to assess consolidated risk exposures. In particular, it argues that data collected along the residency-based SNA concept can be usefully complemented by a nationality-based, global approach. This requires the establishment of a framework for assessing financial positions on a socalled "nationality-basis", that is, at a globally consolidated level.

NBER Working Paper

Authors: Joshua Aizenman, Menzie D. Chinn and Hiro Ito
Date: October 2016
Abstract: We study how the financial conditions in the Center Economies [the U.S., Japan, and the Euro area] impact other countries over the period 1986 through 2015. Our methodology relies upon a two-step approach. We focus on five possible linkages between the center economies (CEs) and the non-Center economics, or peripheral economies (PHs), and investigate the strength of these linkages. For each of the five linkages, we first regress a financial variable of the PHs on financial variables of the CEs while controlling for global factors. Next, we examine the determinants of sensitivity to the CEs as a function of country-specific macroeconomic conditions and policies, including the exchange rate regime, currency weights, monetary, trade and financial linkages with the CEs, the levels of institutional development, and international reserves. Extending our previous work (Aizenman et al. (2016)), we devote special attention to the impact of currency weights in the implicit currency basket, balance sheet exposure, and currency composition of external debt. We find that for both policy interest rates and the real exchange rate (REER), the link with the CEs has been pervasive for developing and emerging market economies in the last two decades, although the movements of policy interest rates are found to be more sensitive to global financial shocks around the time of the emerging markets’ crises in the late 1990s and early 2000s, and since 2008. When we estimate the determinants of the extent of connectivity, we find evidence that the weights of major currencies, external debt, and currency compositions of debt are significant factors. More specifically, having a higher weight on the dollar (or the euro) makes the response of a financial variable such as the REER and exchange market pressure in the PHs more sensitive to a change in key variables in the U.S. (or the euro area) such as policy interest rates and the REER. While having more exposure to external debt would have similar impacts on the financial linkages between the CEs and the PHs, the currency composition of international debt securities does matter. Economies more reliant on dollar-denominated debt issuance tend to be more vulnerable to shocks emanating from the U.S.

BIS Working Paper

Authors: Stefan Avdjiev, Catherine Koch, Patrick McGuire and Goetz von Peter
Date: October 2016
Abstract: We combine the BIS international banking statistics with the IBRN prudential instruments database in a global study analyzing the effect of prudential measures on international lending. Our bilateral setting, which features multiple home and destination countries, allows us to simultaneously estimate both the international transmission and the local effects of such measures. We find that changes in macroprudential policy via loan-to-value limits and local currency reserve requirements have a significant impact on international bank lending. Balance sheet characteristics play an important role in determining the strength of these effects, with better capitalized banking systems and those with more liquid assets and less core deposits reacting more. Overall, our results suggest that the tightening of these macroprudential measures can be associated with international spillovers.

NBER Working Paper

Authors: Òscar Jordà, Moritz Schularick and Alan M. Taylor
Date: October 2016
Abstract: In advanced economies, a century-long near-stable ratio of credit to GDP gave way to rapid financialization and surging leverage in the last forty years. This "financial hockey stick" coincides with shifts in foundational macroeconomic relationships beyond the widely-noted return of macroeconomic fragility and crisis risk. Leverage is correlated with central business cycle moments, which we can document thanks to a decade-long international and historical data collection effort. More financialized economies exhibit somewhat less real volatility, but also lower growth, more tail risk, as well as tighter real-real and real-financial correlations. International real and financial cycles also cohere more strongly. The new stylized facts that we discover should prove fertile ground for the development of a new generation of macroeconomic models with a prominent role for financial factors.

NBER Working Paper

Authors: Jose Berrospide, Ricardo Correa, Linda Goldberg and Friederike Niepmann
Date: September 2016
Abstract: Domestic prudential regulation can have unintended effects across borders and may be less effective in an environment where banks operate globally. Using U.S. micro-banking data for the first quarter of 2000 through the third quarter of 2013, this study shows that some regulatory changes indeed spill over. First, a foreign country’s tightening of limits on loan-to-value ratios and local currency reserve requirements increase lending growth in the United States through the U.S. branches and subsidiaries of foreign banks. Second, a foreign tightening of capital requirements shifts lending by U.S. global banks away from the country where the tightening occurs to the United States and to other countries. Third, tighter U.S. capital regulation reduces lending by large U.S. global banks to foreign residents.

NBER Working Paper

Authors: Ross Levine, Chen Lin and Wensi Xie
Date: August 2016
Abstract: We assess the impact of the geographic expansion of bank assets on the cost of banks’ interest-bearing liabilities. Existing research suggests that expansion can both intensify agency problems that increase funding costs and facilitate risk diversification that decreases funding costs. Using a newly developed identification strategy, we discover that the geographic expansion of banks across U.S. states lowered their funding costs, especially when banks are headquartered in states with lower macroeconomic covariance with the overall U.S. economy. The results are consistent with the view that geographic expansion offers large risk diversification opportunities that reduce funding costs.

Bundesbank Discussion Paper

Authors: Thomas Kick, Michael Koetter, Manuela Storz
Date: August 2016
Abstract: We show that emergency liquidity provision by the Federal Reserve transmitted to non-U.S. banking markets. Based on manually collected holding company structures of international banks, we can identify banks in Germany with access to U.S. facilities via internal capital markets. Using proprietary interest rate data reported to the German central bank, we compare lending and borrowing rates of banks with and without such access. U.S. liquidity shocks cause a significant decrease in the short-term funding costs of German banks with access. Short-term loan rates charged to German corporates also decline, albeit with lags between two and four months. These spillover effects of U.S. monetary policy are confined to short-term rates.

BIS Working Paper

Authors: Claudia Buch, Catherine Koch and Michael Koetter
Date: August 2016
Abstract: This paper studies how global banks transmit liquidity shocks via their internal capital markets. The unexpected access of German banks' affiliates located in the United States (US) to the Federal Reserve's Term Auction Facility (TAF) serves as our liquidity shock. Using microdata on all affiliates abroad, we test whether affiliates located outside the US adjusted their balance sheets during periods, when the US-located affiliate of the same parent received TAF loans. Our analysis has three main findings. First, during periods of active TAF borrowing, foreign affiliates of parent banks with high US dollar funding needs reduced their foreign assets by less. We identify those parents based on their pre-crisis exposure to the US asset-backed commercial paper (ABCP) market. Second, foreign affiliates in financial centers also shrank their assets less. Third, there is no evidence that the ABCP exposure per se is driving the reduction of activity outside the US. In sum, our results show that the TAF program spilled over into foreign markets, while highlighting the importance of actively managed internal capital markets and the increased centralization of global banks' liquidity management at the domestic parent during and after the financial crisis.

BIS Note

Authors: Nikola Tarashev, Stefan Avdjiev and Benjamin H Cohen
Date: August 2016
Abstract: This note analyses the exposure of emerging market economies to international capital flow risks, paying particular attention to vulnerabilities in the non-financial corporate sector. It stresses the importance of studying the stocks of debt, gross rather than net flows, borrowers' nationality rather than location, and the currency denomination of debt. The note also offers methodological guidance for constructing measures of financial vulnerabilities and points to data gaps.

Bundesbank Discussion Paper

Authors: Jana Ohls, Marcus Pramor and Lena Tonzer
Date: August 2016
Abstract: We analyze the inward and outward transmission of regulatory changes through German banks’ (international) loan portfolio. Overall, our results provide evidence for international spillovers of prudential instruments, these spillovers are however quite heterogeneous between types of banks and can only be observed for some instruments. For instance, foreign banks located in Germany reduce their loan growth to the German economy in response to a tightening of sector-specific capital buffers, local reserve requirements and loan to value ratios in their home country. Furthermore, from the point of view of foreign countries, tightening reserve requirements was effective in reducing lending inflows from German banks. Finally, we find that business and financial cycles matter for lending decisions.

CGFS Working Paper

Authors: Committee on the Global Financial System Study Group
Date: July 2016
Abstract: The report provides an overview of the experiences of central banks with approaches and methodologies used in appraisals as well as of how the appraisals are used in operational decision-making. The Study Group found that there is a definite trend towards more quantitative analysis in ex ante appraisals, but expert judgment retains a very important role in the setting of policy. This is particularly the case in assessing the influence of policy on market participants’ behaviour and expectations. A key message of the report is that governance arrangements should promote wider cooperation in conducting appraisals because these exercises require a diverse set of skills and depend on the setting of other policies.

ESRB Working Paper

Authors: Markus Behn, Marco Gross and Tuomas Peltonen
Date: July 2016
Abstract: We develop an integrated Early Warning Global Vector Autoregressive (EW-GVAR) model to quantify the costs and benefits of capital-based macroprudential policy measures. Our findings illustrate that capital-based measures are transmitted both via their impact on the banking system's resilience and via indirect macro- financial feedback effects. The feedback effects relate to dampened credit and asset price growth and, depending on how banks move to higher capital ratios, can account for up to a half of the overall effectiveness of capital-based measures. Moreover, we document significant cross-country spillover effects, especially for measures implemented in larger countries. Overall, our model helps to understand how and through which channels changes in capitalization affect bank lending and the wider economy and can inform policy makers on the optimal calibration and timing of capital-based macroprudential instruments.

CEPR Working Paper

Authors: Giacomo Calzolari, Jean-Edouard Colliard and Gyöngyi Lóránth
Date: June 2016
Abstract: We study the supervision of multinational banks (MNBs), allowing for either national or supranational supervision. National supervision leads to insufficient monitoring of MNBs due to a coordination problem between supervisors. Supranational supervision solves this problem and generates more monitoring. However, this increased monitoring can have unintended consequences, as it also affects the choice of foreign representation. Indeed, supranational supervision encourages MNBs to expand abroad using branches rather than subsidiaries, resulting in more pressure on their domestic deposit insurance fund. In some cases, it discourages foreign expansion altogether, so that financial integration paradoxically decreases. Our framework has implications on the design of supervisory arrangements for MNBs, the European Single Supervisory Mechanism being a prominent example.

IMF Working Paper

Authors: Deniz Anginer, Eugenio Cerutti and Maria Soledad Martinez Peria
Date: June 2016
Abstract: This paper examines the association between the default risk of foreign bank subsidiaries in developing countries and their parents during the global financial crisis, with the purpose of determining the size and sign of this correlation and, more importantly, understanding what factors can help insulate affiliates from their parents. We find evidence of a significant and robust positive correlation between parent banks’ and foreign subsidiaries’ default risk. This correlation is lower for subsidiaries that have a higher share of retail deposit funding and that are more independently managed from their parents. Host country bank regulations also influence the extent to which shocks to the parents affect the subsidiaries’ default risk. In particular, the correlation between the default risk of subsidiaries and their parents is lower for subsidiaries operating in countries that impose higher capital, reserve, provisioning, and disclosure requirements, and tougher restrictions on bank activities.

IMF Working Paper

Authors: Eugenio Cerutti, Ricardo Correa, Elisabetta Fiorentino and Esther Segalla
Date: June 2016
Abstract: This paper documents the features of a new database that focuses on changes in the intensity in the usage of several widely used prudential tools, taking into account both macro-prudential and micro-prudential objectives. The database coverage is broad, spanning 64 countries, and with quarterly data for the period 2000Q1 through 2014Q4. The five types of prudential instruments in the database are: capital buffers, interbank exposure limits, concentration limits, loan to value (LTV) ratio limits, and reserve requirements. A total of nine prudential tools are constructed since some useful further decompositions are presented, with capital buffers divided into four subindices: general capital requirements, real state credit specific capital buffers, consumer credit specific capital buffers, and other specific capital buffers; and with reserve requirements divided into two sub-indices: domestic currency capital requirements and foreign currency capital requirements. While general capital requirements have the most changes from the cross-country perspective, LTV ratio limits and reserve requirements have the largest number of tightening and loosening episodes. We also analyze the instruments’ usage in relation to the evolution of key variables such as credit, policy rates, and house prices, finding substantial differences in the patterns of loosening or tightening of instruments in relation to business and financial cycles.

Working Paper

Authors: Giacomo Calzolari, Jean-Edouard Colliard and Gyongyi Loranth
Date: April 2016
Abstract: We study the supervision of multinational banks (MNBs), allowing for either national or supranational supervision. National supervision leads to insufficient monitoring of MNBs due to a coordination problem between supervisors. Supranational supervision solves this problem and generates more monitoring. However, this increased monitoring can have unintended consequences, as it also affects the choice of foreign representation. Indeed, supranational supervision encourages MNBs to expand abroad using branches rather than subsidiaries, resulting in more pressure on their domestic deposit insurance fund. In some cases, it discourages foreign expansion altogether, so that financial integration paradoxically decreases. Our framework has implications on the design of supervisory arrangements for MNBs, the European Single Supervisory Mechanism being a prominent example.

IMF Working Paper

Authors: Galina Hale, Tümer Kapan and Camelia Minoiu
Date: April 2016
Abstract: We study the transmission of financial sector shocks across borders through international bank connections. For this purpose, we use data on long-term interbank loans among more than 6,000 banks during 1997-2012 to construct a yearly global network of interbank exposures. We estimate the effect of direct (first-degree) and indirect (second-degree) exposures to countries experiencing systemic banking crises on bank profitability and loan supply. We find that direct exposures to crisis countries squeeze banks' profit margins, thereby reducing their returns. Indirect exposures to crisis countries enhance this effect, while indirect exposures to non-crisis countries mitigate it. Furthermore, crisis exposures have real effects in that they reduce banks' supply of domestic and cross-border loans. Our results, based on a large global sample, support the notion that interconnected financial systems facilitate shock transmission.

IMF Working Paper

Authors: Hibiki Ichiue and Frederic Lambert
Date: April 2016
Abstract: Foreign bank lending has stopped growing since the global financial crisis. Changes in banks’ business models, balance-sheet adjustments, as well as the tightening of banking regulations are potential drivers of this prolonged slowdown. The existing literature however suggests an opposite effect related to regulation, with tighter regulations encouraging foreign lending through regulatory arbitrage. We investigate this question using new survey data on regulations specific to banks’ international operations. Our results show that regulatory tightening can explain about half of the decline in the foreign lending-to-GDP ratio between 2007 and 2013. Regulatory changes in home countries have had a larger effect than those in host countries.

BIS Working Paper

Authors: Stefan Avdjiev and Elõd Takáts
Date: March 2016
Abstract: Using data from British and American banks, we provide empirical evidence that government intervention affects banking globalization along three dimensions: depth, breadth and persistence. We examine depth by studying whether a bank’s preference for domestic, as opposed to external, lending (funding) changes when it is subjected to a large public intervention, such as bank nationalization. Our results suggest that, following nationalization, non-British banks allocate their lending away from the UK and increase their external funding. Second, we find that nationalized banks from the same country tend to have portfolios of foreign assets that are spread across countries in a way that is far more similar than either private banks from the same country or nationalized banks from different countries, consistent with an impact on the breadth of globalization. Third, we study the Troubled Asset Relief Program (TARP) to examine the persistence of the effect of large government interventions. We find weak evidence that upon entry into the TARP, foreign lending declines but domestic does not. This effect is observable at the aggregate level, and seems to disappear upon TARP exit. Collectively, this evidence suggests that large government interventions affect the depth and breadth of banking globalization, but may not persist after public interventions are unwound.

CEPR Working Paper

Authors:Anya Kleymenova, Andrew K Rose and Tomasz Wieladek
Date: February 2016
Abstract: Using data from British and American banks, we provide empirical evidence that government intervention affects banking globalization along three dimensions: depth, breadth and persistence. We examine depth by studying whether a bank’s preference for domestic, as opposed to external, lending (funding) changes when it is subjected to a large public intervention, such as bank nationalization. Our results suggest that, following nationalization, non-British banks allocate their lending away from the UK and increase their external funding. Second, we find that nationalized banks from the same country tend to have portfolios of foreign assets that are spread across countries in a way that is far more similar than either private banks from the same country or nationalized banks from different countries, consistent with an impact on the breadth of globalization. Third, we study the Troubled Asset Relief Program (TARP) to examine the persistence of the effect of large government interventions. We find weak evidence that upon entry into the TARP, foreign lending declines but domestic does not. This effect is observable at the aggregate level, and seems to disappear upon TARP exit. Collectively, this evidence suggests that large government interventions affect the depth and breadth of banking globalization, but may not persist after public interventions are unwound.

CEPR Working Paper

Authors: Stephen G Cecchetti and Paul Tucker
Date: January 2016
Abstract: In this paper we address three questions: (1) Does global finance require a common prudential standard? (2) Does global finance require international cooperation in overseeing the system’s safety and soundness? And (3), does global finance require notification, cooperation and coordination of dynamic regulatory-policy adjustments? Our answer to the first question is that global finance does require a common prudential standard, defined as a level of required resilience, applied appropriately to all parts of the financial system. Without adoption of a common resilience standard, the international financial system will fragment and balkanize. In addressing the second question, we explain why shared, collective analysis is necessary to identify and mitigate stability-threatening shortfalls against that standard for resilience. This will be possible only with increased public and private transparency. Finally, we examine the daunting, but essential, task of implementing a dynamic prudential framework that maintains the system’s resilience even as its structure and risk-taking behaviors change. The policy implications of our analysis focus on the need for global agreement, implementation monitoring, information sharing and even, sometimes given damaging spillovers, collective regulatory responses to emerging threats. Institutions will need to be adapted to make all this feasible.