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International Financial Integration, Crises and Monetary Policy: Cross-Border Interbank Lending During the Euro Crises

Puriya Abbassi, Falk Bräuning, Falko Fecht () and Jose-Luis Peydro ()

No 965, Working Papers from Barcelona Graduate School of Economics

Abstract: We analyze how the Lehman and sovereign crises affect international financial integration, exploiting euro-area proprietary interbank data, crisis and monetary shocks, and loan terms to the same borrower during the same day by domestic versus foreign lenders. Crisis shocks reduce the supply of cross-border liquidity, with stronger volume than pricing effects, thereby impairing international financial integration. On the extensive margin, the cross-border credit crunch is independent of quality, while—on the intensive margin—riskier borrower banks suffer more. Moreover, the cross-border liquidity crunch is substantially stronger for term loans, and weaker for foreign lender banks that have a subsidiary in the same country than the borrower. Nonstandard monetary policy improves interbank liquidity, but without fostering strong crossborder financial re-integration.

Keywords: financial integration; financial crises; cross-border lending; monetary policy; international liquidity (search for similar items in EconPapers)
JEL-codes: E58 F30 G01 G21 G28 (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac, nep-mon and nep-opm
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