International Banking and Liquidity Risk Transmission: Evidence from Ireland

Mary Everett (), Jane Kelly and Fergal McCann ()

IMF Economic Review, 2015, vol. 63, issue 3, 542-567

Abstract: The increased international expansion of Irish banks, combined with entry into the domestic market by a number of foreign competitors makes Ireland a pertinent country for studying the international transmission of liquidity risk. Using bank-level panel data and novel data on access to central bank liquidity and Exceptional Liquidity Assistance, regression analysis confirms a risk-absorbing effect, whereby official liquidity helped mitigate the effect of liquidity risk on domestic lending by larger Irish banks. Regression analysis also confirms that a larger net borrowing position vis-à-vis foreign affiliates insulates the effect of liquidity risk on domestic lending, suggesting that banks’ internal capital markets can provide a counterweight to systemic risks.

Date: 2015
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