What determines the composition of international bank flows?

Cornelia Kerl and Friederike Niepmann

No 681, Staff Reports from Federal Reserve Bank of New York

Abstract: Several recent studies document that the extent to which banks transmit shocks across borders depends on the type of foreign activities these banks engage in. This paper proposes a model to explain the composition of banks? foreign activities, distinguishing between international interbank lending, intrabank lending, and cross-border lending to foreign firms. The model shows that the different activities are jointly determined and depend on the efficiencies of countries? banking sectors, differences in the return on loans across countries, and impediments to foreign bank operations. Specifically, the model predicts that international interbank lending increases and lending to foreign nonbanking firms declines when banks? barriers to entry rise, a hypothesis supported by German bank-level data. This result suggests that policies that restrict the operations of foreign banks in a country may move activity onto international interbank markets, with the potential to make domestic credit overall less resilient to financial distress.

Keywords: global banks; transmission of shocks; international bank flows; interbank markets (search for similar items in EconPapers)
JEL-codes: F21 F23 F30 G21 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2014-07-01
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 (8)

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Working Paper: What Determines the Composition of International Bank Flows? (2016)
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