International banking and liquidity risk transmission: lessons from the United Kingdom

Robert Hills, John Hooley (), Yevgeniya Korniyenko () and Tomasz Wieladek
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John Hooley: International Monetary Fund
Yevgeniya Korniyenko: International Monetary Fund

No 562, Bank of England working papers from Bank of England

Abstract: This paper forms the United Kingdom’s contribution to the International Banking Research Network’s project examining the impact of liquidity shocks on banks’ lending behaviour, using proprietary bank-level data available to central banks. Specifically, we examine the impact of changes in funding conditions on UK-resident banks’ domestic and external lending from 2006–12. Our results suggest that, following a rise in the liquidity shock measure, UK-resident banks that grew their balance sheets quicker relative to their peers pre-crisis, decreased their external lending by more relative to other banks, and increased their domestic lending. When we account for country of ownership, we find that the same pattern was true for both UK-owned and foreign-owned banks, but more pronounced for UK-owned banks’ domestic and foreign-owned banks’ external lending. These results are robust to splitting the data into real and financial sector lending, the use of more granular bilateral country loan data and controlling for the various banking system interventions made by governments in 2008–09.

Keywords: Liquidity shock; global financial crisis; cross-border and domestic lending. (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 G18 G21 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2015-11-06
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0562

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