International Banking and Liquidity Risk Transmission: Evidence from Australia

Rochelle Guttmann and David Rodgers

IMF Economic Review, 2015, vol. 63, issue 3, 425 pages

Abstract: This paper examines whether the changes seen at banks in Australia during the financial crisis—specifically, slower growth in domestic and foreign lending, and less net borrowing from international affiliates—can be linked to heightened liquidity risk. Using the IBRN methodology detailed in Buch and Goldberg (2015), which compares cross-sectional differences in these changes to cross-sectional differences in various bank characteristics, it finds no single bank characteristic to be a consistent source of liquidity risk in Australia. There are indications that greater liquid asset shares and deposit funding support lending, but these do not survive various robustness checks. Overall, the paper concludes that developments at banks in Australia during the financial crisis were not driven by cross-sectional differences in vulnerability to liquidity risk. This may be due to the less severe crisis experience in Australia.

Date: 2015
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