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Transmission of Bank Liquidity Shocks in Loan and Deposit Markets: The Role of Interbank Borrowing and Market Monitoring

Franklin Allen (), Aneta Hryckiewicz, Oskar Kowalewski () and Gunseli Tumer-Alkan
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Gunseli Tumer-Alkan: VU University Amsterdam

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: We examine the international transmission of bank liquidity shocks from multinational bankholding companies to their subsidiaries. Our findings are consistent with the studies that document that parent bank fragility negatively affects lending by subsidiaries. We further find that reduction in foreign bank lending is stronger for those that are dependent on the interbank market. Moreover, foreign bank lending is determined by different factors in emerging markets and in developed countries. Finally, we show that liquidity needs determine the change in deposits in developing economies, especially during the recent crisis whereas market discipline is relatively more dominant in developed countries.

JEL-codes: F15 F34 G21 (search for similar items in EconPapers)
Date: 2010-11
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Handle: RePEc:ecl:upafin:10-28