Foreign Banks, Liquidity Shocks, and Credit Stability

Daniel Belton, Leonardo Gambacorta, Sotirios Kokas and Raoul Minetti

The Review of Corporate Finance Studies, 2023, vol. 12, issue 1, 131-169

Abstract: This paper investigates whether foreign banks help mitigate the effects of domestic liquidity shocks by exploiting a policy-induced shock to the U.S. wholesale market for liquidity and matched bank-syndicated loan data. We find that, following the 2011 Federal Deposit Insurance Corporation (FDIC) regulatory change to the cost of wholesale liquidity, foreign banks, which faced a relatively positive liquidity shock, accumulated more reserves by engaging in liquidity hoarding, but did not expand their lending. These responses are more pronounced for foreign banks affiliated with complex global bank holding companies and whose parent banking systems experienced distress at the moment of the shock. (JEL G21, G28, E44)Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Date: 2023
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Related works:
Working Paper: Foreign banks, liquidity shocks, and credit stability (2020)
Working Paper: Foreign Banks, Liquidity Shocks, and Credit Stability (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:rcorpf:v:12:y:2023:i:1:p:131-169.

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