Financial Intermediaries and the Changing Risk Sensitivity of Global Liquidity Flows

Stefan Avdjiev and Linda Goldberg

No 20250626, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Global risk conditions, along with monetary policy in major advanced economies, have historically been major drivers of cross-border capital flows and the global financial cycle. So what happens to these flows when risk sentiment changes? In this post, we examine how the sensitivity to risk of global financial flows changed following the global financial crisis (GFC). We find that while the risk sensitivity of cross-border bank loans (CBL) was lower following the GFC, that of international debt securities (IDS) remained the same as before the GFC. Moreover, the changes in risk sensitivities of these flows were related to balance sheet constraints of financial institutions that were intermediating these flows.

Keywords: global liquidity; international bank lending; international bond flows; emerging markets; advanced economies (search for similar items in EconPapers)
JEL-codes: F34 G10 G21 (search for similar items in EconPapers)
Date: 2025-06-26
New Economics Papers: this item is included in nep-mon
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