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Cross-border transmission of emergency liquidity

Thomas Kick (), Michael Koetter and Manuela Storz

Journal of Banking & Finance, 2020, vol. 113, issue C

Abstract: We show that emergency liquidity provision by the Federal Reserve transmitted to non-U.S. banking markets. Based on manually collected holding company structures, we identify banks in Germany with access to U.S. facilities. Using detailed interest rate data reported to the German central bank, we compare lending and borrowing rates of banks with and without such access. U.S. liquidity shocks cause a significant decrease in the short-term funding costs of the average German bank with access. This reduction is mitigated for banks with more vulnerable balance sheets prior to the inception of emergency liquidity. We also find a significant pass-through in terms of lower corporate credit rates charged for banks with the lowest pre-crisis leverage, US-dollar funding needs, and liquidity buffers. Spillover effects from U.S. emergency liquidity provision are generally confined to short-term rates.

Keywords: Cross-border policy transmission; Emergency liquidity; Internal capital markets; Interest rates (search for similar items in EconPapers)
JEL-codes: E52 E58 F23 F38 G01 G21 (search for similar items in EconPapers)
Date: 2020
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Related works:
Working Paper: Cross-border transmission of emergency liquidity (2017) Downloads
Working Paper: Cross-border transmission of emergency liquidity (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:113:y:2020:i:c:s0378426618300384

DOI: 10.1016/j.jbankfin.2018.02.006

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