The International Transmission of Shocks: Foreign Bank Branches in Hong Kong during Crises

Cho-hoi Hui, Simon Kwan and Eric T. C. Wong

No 2014-25, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: The international transmission of shocks in the global financial system has always been an important issue for policy makers. Different types of foreign shocks have different effects and policy implications. In this paper, we examine the effects of the recent U.S. financial crisis and the European sovereign debt crisis on foreign bank branches in Hong Kong. Unlike the literature on global banking that studies a global bank?s foreign operations from a home country perspective, our analysis uses foreign bank branches in Hong Kong and has a distinct host country perspective, which would seem more relevant to the host country policy makers. We find global banks using the foreign branches in Hong Kong as a funding source during the liquidity crunch in home country, suggesting that global banks manage their liquidity risk globally. After the central bank at home country introduced liquidity facility to relieve funding pressure, the effect disappeared. We also find strong evidence that foreign branches originated from crisis countries lend significantly less in Hong Kong relative to their controls, suggesting the presence of the lending channel in the transmission of shocks from the home country to the host country.

Keywords: shocks transmission; foreign banks; financial crisis; liquidity management (search for similar items in EconPapers)
JEL-codes: F65 G01 G21 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2014-10
New Economics Papers: this item is included in nep-ban and nep-ifn
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Citations: View citations in EconPapers (1)

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Working Paper: The International Transmission of Shocks: Foreign Bank Branches in Hong Kong during Crises (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2014-25

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DOI: 10.24148/wp2014-25

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