Banking Globalization and Monetary Transmission

Abstract

Globalization of banking raises questions about banks’ liquidity management, their response to liquidity shocks, and the potential for international shock propagation. We conjecture that global banks manage liquidity on a global scale, actively using cross‐border internal funding in response to local shocks. Having global operations insulates banks from changes in monetary policy, while banks without global operations are more affected by monetary policy than previously found. We provide direct evidence that internal capital markets are active in global banks and contribute to the international propagation of shocks. This feature was at play during the financial crisis of 2007–2009.

An Analysis of the Impact of Monetary Policy on Bank Lending in Russia

“…A similar phenomenon has been illustrated in an article by Kishan and Opiela (2000) in respect of banks with relatively high equity ratios, as well as in an article by Cetorelli and Goldberg (2012) in respect of banks that can attract funds from international operations.…”

“…A number of factors cause the weakening of the bank lending channel. Thus, some studies we have already mentioned have established the impact of large liquidity (Kashyap & Stein, 2000), the impact of a high equity ratio coefficient (Kishan & Opiela, 2000), and the impact of engaging funds from international operations (Cetorelli & Goldberg, 2012).…”

Home-Host Banking Issues and Non-Core Funding—Evidence from Central and Eastern Europe

“…Other evidence on the risk taking channel were provided by (Altunbas et al 2010) and (Altunbas, et al 2014) for samples of international banks or (Angeloni et al 2010) using a VAR set-up. This argument is further scrutinized in (Cetorelli and Goldberg 2012) who emphasize the role of the internal-capital markets of global banks in the amplification of the monetary policy effects. To this end, the complete transmission mechanism remains elusive.…”

“…To this end, there is a wealth of evidence on the role of internal capital markets, of internationally active banks, in the transmission of shocks from home countries to host countries, (Peek and Rosengren 1997), (Cetorelli and Goldberg 2011) or (Cetorelli and Goldberg 2012), yet the role of home monetary policy on risk-taking abroad remains largely untackled. The role of foreign bank ownership in the international transmission of shocks converges to the idea that it had a sizeable impact on the contraction of credit in host countries.…”

“…Second, to the extent that monetary policy is non-neutral from a financial stability perspective, it is essential to understand its effect in a crossborder banking environment, and test the functionality of the bank internal capital markets, (Campello 2002) and (Cetorelli and Goldberg 2012), and the international shock transmission mechanism (Cetorelli and Goldberg 2011). Finally, in the context of the European Union and its peculiar institutional set-up-a unique monetary policy run by ECB for all the Euro Area (EA) member states, but different credit and economic cycles and different banking supervisory arrangements-the natural question is to what extent this fragmentation was or still is an important factor in the dynamics of risk accumulation in the banking sectors of the CESEE countries.…”