Crises and Rescues: Liquidity Transmission Through Global Banks
Michael Koetter, Claudia M. Buch, C. T. Koch
International Journal of Central Banking,
This paper shows that global banks transmit liquidity shocks via their network of foreign affiliates. We use the (unexpected) access of German banks' affiliates located in the United States to the Federal Reserve's Term Auction Facility. We condition on the parent banks' U.S. dollar funding needs in order to examine how affiliates located outside the United States adjusted their balance sheets when the U.S. affiliate of the same parent tapped into TAF liquidity. Our research has three main findings. First, affiliates tied to parents with higher U.S. dollar funding needs expanded their foreign assets during periods of active TAF borrowing. Second, the overall effects are driven by affiliates located in financial centers. Third, U.S.- dollar-denominated lending particularly increased in response to the TAF program.
Crises, rescues, and policy transmission through international banks
Claudia M. Buch
Bundesbank Discussion Paper 15/2011,
The World Financial Crisis has shaken the fundamentals of international banking
and triggered a downward spiral of asset prices. To prevent a further meltdown of
markets, governments have intervened massively through rescues measures aimed at recapitalizing banks and through liquidity support. We use a detailed, banklevel dataset for German banks to analyze how the lending and borrowing of their foreign affiliates has responded to domestic (German) and to US crisis support schemes. We analyze how these policy interventions have spilled over into
foreign markets. We identify loan supply shocks by exploiting that not all banks
have received policy support and that the timing of receiving support measures
has differed across banks. We find that banks covered by rescue measures of the
German government have increased their foreign activities after these policy
interventions, but they have not expanded relative to banks not receiving support.
Banks claiming liquidity support under the Term Auction Facility (TAF) program
have withdrawn from foreign markets outside the US, but they have expanded
relative to affiliates of other German banks.