The two faces of cross-border banking flows: an investigation into the links between global risk, arms-length funding and internal capital markets

Dennis Reinhardt and Steven Riddiough ()
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Steven Riddiough: Warwick Business School

No 498, Bank of England working papers from Bank of England

Abstract: We decompose gross cross-border bank-to-bank funding between arms-length (interbank) and related (intragroup) funding, and show that while interbank funding is withdrawn when global risk is high, intragroup funding remains stable during these periods, despite being more volatile on average. We disaggregate intragroup funding further and find advanced economy parent banks benefit from inflows during episodes of heightened global risk. However, we do not find evidence of significantly reduced intragroup funding to foreign affiliates during these periods. Our results are in contradiction with theoretical predictions on the behaviour of cross-border banking flows, and help explain why certain banking systems lost more cross-border bank-to-bank funding than others during the global financial crisis.

Keywords: Cross-border banking flows; global risk; parent banks and foreign affiliates (search for similar items in EconPapers)
JEL-codes: F32 F34 G21 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2014-04-17
New Economics Papers: this item is included in nep-ban, nep-ifn and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0498

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