Implications of Liquidity Management of Global Banks for Host Countries Evidence from Foreign Bank Branches in Hong Kong

Wong, Eric; Tsang, Andrew; Kong, Steven

doi:10.2139/ssrn.2487750

SSRN Journal

2014

DOI: 10.2139/ssrn.2487750

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Implications of Liquidity Management of Global Banks for Host Countries Evidence from Foreign Bank Branches in Hong Kong

Eric Wong¹,

Andrew Tsang²,

Steven Kong³

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Cited by 3 publications

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“…Wong, Tsang, and Kong (2014) provided evidence that during the financial crisis, global banks reacted to a parentbank funding shock by repatriating funds from their Hong Kong branches through their internal capital market, and thereby transmitting global banks' liquidity shock from the home to the host country. We follow a similar line of inquiry, using a different methodology.…”

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The International Transmission of Shocks: Foreign Bank Branches in Hong Kong During Crises

Kwan

Wong²,

Hui³

2015

SSRN Journal

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We examine the effects of the 2007-09 U.S. financial crisis and the 2011-12 European sovereign debt crisis on global banks' foreign operation in Hong Kong. During both crises, foreign banks from crisis countries did not exhibit significantly different liquidity management than banks from non-crisis countries, suggesting that the liquidity interventions by the home countries' central banks seemed effective. However, foreign banks from crisis countries significantly pulled back their lending in Hong Kong, relative to their non-crisis counterparts, resulting in significantly slower asset growth. Our results suggest the possibility of a lending channel in the transmission of shocks from the home country to the host country.On the other hand, quantitative easing by central banks is found to have significant effects on their global banks' liquidity management in Hong Kong. Foreign banks held less liquid assets, and up streamed less funds to their parents when their home country central bank conducted QE. QE banks in Hong Kong are also found to lend less, and grew their assets slower, than non-QE banks.

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The International Transmission of Shocks: Foreign Bank Branches in Hong Kong During Crises

Kwan

Wong²,

Hui³

2015

SSRN Journal

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International Banking and Liquidity Risk Transmission: Lessons from Across Countries

Buch

2014

SSRN Journal

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Activities of international banks have been at the core of discussions on the causes and effects of the international financial crisis. Yet, we know little about the actual magnitudes and mechanisms for transmission of liquidity shocks through international banks, including the reasons for heterogeneity in transmission across banks. The International Banking Research Network (IBRN), established in 2012, brings together researchers from around the world with access to micro-data on individual banks to analyze issues pertaining to global banks. This paper summarizes the common methodology and results of empirical studies conducted in 11 countries to explore liquidity risk transmission. Among the main results is, first, that explanatory power of the empirical model is higher for domestic lending than for international lending. Second, how liquidity risk affects bank lending depends on the whether the banks are drawing on official sector liquidity facilities. Third, liquidity management across global banks can be important for liquidity risk transmission into lending. Fourth, there is substantial heterogeneity in the balance sheet characteristics that affect banks' responses to liquidity risk. Overall, bank balance sheet characteristics matter for differentiating lending responses across banks mainly in the realm of cross-border lending.

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The International Transmission of Shocks: Foreign Bank Branches in Hong Kong during Crises

Kwan¹,

Wong²,

Hui³

2014

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Implications of Liquidity Management of Global Banks for Host Countries Evidence from Foreign Bank Branches in Hong Kong

Cited by 3 publications

References 8 publications

The International Transmission of Shocks: Foreign Bank Branches in Hong Kong During Crises

The International Transmission of Shocks: Foreign Bank Branches in Hong Kong During Crises

International Banking and Liquidity Risk Transmission: Lessons from Across Countries

The International Transmission of Shocks: Foreign Bank Branches in Hong Kong during Crises

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