Uncertainty and cross-border banking flows

Sangyup Choi and Davide Furceri

Journal of International Money and Finance, 2019, vol. 93, issue C, 260-274

Abstract: While global uncertainty—measured by the VIX—has proven to be a robust global “push” factor of international capital flows, there has been no systematic study assessing the role of uncertainty in driving bilateral capital flows. This paper examines the effects of higher country-specific uncertainty on cross-border banking flows using data from the Bank for International Settlements Locational Banking Statistics. The bilateral structure of this data allows disentangling supply factors from demand factors, thereby helping identify the effect of higher uncertainty on cross-border banking flows from other confounding factors. The results of this analysis suggest that: (i) uncertainty in a source country (domestic economy) is both a lender-specific push and pull factor that robustly predicts a decrease in outflows (cross-border lending) and inflows (cross-border borrowing); (ii) the decline in cross-border borrowing is larger than the decline in cross-border lending—that is, the net cross-border position of the banking sector increases; (iii) despite a decline in cross-border bank lending in the absolute sense, the share of cross-border bank lending in total bank lending increases, suggesting a portfolio rebalancing; (iv) this rebalancing occurs only when banks are lending to borrowers in advanced economies, but not to those in emerging market economies.

Keywords: Uncertainty; Cross-border banking flows; Stops; Retrenchment; Portfolio rebalancing; Flight-to-safety (search for similar items in EconPapers)
JEL-codes: F21 F32 F42 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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Related works:
Working Paper: Uncertainty and Cross-Border Banking Flows (2018)
Working Paper: Uncertainty and Cross-Border Banking Flows (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:93:y:2019:i:c:p:260-274

DOI: 10.1016/j.jimonfin.2019.01.012

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