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Shock Transmission through International Banks – Evidence from France

Matthieu Bussiere (), Boubacar Camara, François-Daniel Castellani, Vincent Potier () and Julia Schmidt ()

Working papers from Banque de France

Abstract: As part of the International Banking Research Network, the Banque de France contribution to the research project on liquidity risk transmission concentrates on the “outward”' transmission of shocks affecting French banking groups. Using a rich dataset on their international positions, we analyze which balance sheet vulnerabilities contribute to the international transmission of aggregate liquidity risk shocks. The geographical breakdown of lending allows us to control for demand effects and to concentrate on the external adjustments to shocks affecting the supply of loans. We find that a higher capital ratio is associated with higher growth of lending abroad when aggregate liquidity conditions deteriorate. We find that our results are mainly driven by cross-border lending to the financial sector whereas local lending by foreign affiliates is hardly affected by the balance sheet shocks that the overall banking group is experiencing. We also investigate to what extent the identified effects differ depending on whether banks accessed public liquidity during the crisis and find that our baseline results are sensitive to the inclusion of central bank liquidity assistance.

Keywords: International banking; liquidity risk; shock transmission. (search for similar items in EconPapers)
JEL-codes: D24 F36 G21 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2014
New Economics Papers: this item is included in nep-ban, nep-mon, nep-net and nep-opm
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