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Supply- and demand-side factors in global banking

Mary Amiti (), Patrick McGuire and David E Weinstein

No 639, BIS Working Papers from Bank for International Settlements

Abstract: What is the role for supply and demand forces in determining movements in international banking flows? Answering this question is crucial for understanding the international transmission of financial shocks and formulating policy. This paper addresses the question by using the method developed in Amiti and Weinstein (forthcoming) to exactly decompose the growth in international bank credit into common shocks, idiosyncratic supply shocks and idiosyncratic demand shocks for the period 2000-2016. A striking feature of the global banking flows data can be characterized by what we term the "Anna Karenina Principle": all healthy credit relationships are alike, each unhealthy credit relationship is unhealthy in its own way. During non-crisis years, bank flows are well-explained by a common global factor and a local demand factor. But during times of crisis flows are affected by idiosyncratic supply shocks to a borrower country's creditor banks. This has important implications for why standard models break down during crises.

Keywords: international banking; global financial crisis; supply vs demand shocks; BIS consolidated banking statistics (search for similar items in EconPapers)
JEL-codes: F34 G01 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-ifn
Date: 2017-05
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Related works:
Working Paper: Supply- and Demand-side Factors in Global Banking (2017) Downloads
Working Paper: Supply- and demand-side factors in global banking (2017) Downloads
Working Paper: Supply- and Demand-side Factors in Global Banking (2017) Downloads
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