International monetary policy transmission through banks in small open economies

The international transmission of monetary policy

“…These results are consistent with other recent research showing that the traditional bank lending channel is not necessarily valid for wholesale interbank deposits, and indeed that, in response to a monetary policy tightening, funding tends to shift away from retail deposits to wholesale deposits, such that the effects on wholesale deposits are opposite to those predicted on retail deposits (Drechsler, Savov, and Schnabl 2017). Moreover, the IBRN analysis for the UK and Switzerland (Auer et al 2017) argues that UK banks tend to have access to multiple sources of funding, and so can usually easily replace a source that has become more difficult to access. The international spillover effects are stronger for interbank lending, particularly when split by currency: a tightening in US monetary policy leads to a large negative change in USD-denominated lending to the financial sector by banks dependent on the US for net funding.…”

“…In this context, the role of Switzerland and the UK as international financial centers is important (Auer et al 2017). A substantial share of international liabilities of Swiss domestic banks is liabilities to foreign banks, and indeed different effects arise when splitting crossborder liabilities into bank and non-bank liabilities.…”

The interaction between macroprudential and monetary policies: The cases of Norway and Sweden

“…This has been found true also for Canadian banks in Auer et al. (2019). For Norway, Cao and Dinger (2018) document the impact of foreign monetary policy, which determines the cost of bank funding in foreign currency, on domestic lending after controlling for exchange rate dynamics.…”

“…Argimon et al (2019) look at the other side of the coin in their study for the Netherlands, Spain, and the U.S., showing that banks transmit domestic monetary policy internationally. This has been found true also for Canadian banks in Auer et al (2019). For Norway, Cao and Dinger (2018) document the impact of foreign monetary policy, which determines the cost of bank funding in foreign currency, on domestic lending after controlling for exchange rate dynamics.…”

“…(2018) for Ireland and Portugal. Auer et al (2019) discuss the role of the international portfolio channel for Switzerland. Gajewski et al (2019) document the importance of bank lending in the transmission of foreign monetary policies for Chile, Korea, and Poland.…”