Banking Globalization and Monetary Transmission - Federal Reserve Bank of New York

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Staff Reports

Banking Globalization and Monetary Transmission

July 2008 Number 333
Revised February 2009

JEL classification: E44, F36, G32

Authors: Nicola Cetorelli and Linda S. Goldberg

The globalization of banking in the United States is influencing the monetary transmission mechanism both domestically and in foreign markets. Using quarterly information from all U.S. banks filing call reports between 1980 and 2006, we show that globalized banks activate internal capital markets with their overseas affiliates to insulate themselves partially from changes in domestic liquidity conditions. The existence of these internal capital markets directly contributes to an international propagation of domestic liquidity shocks to lending by affiliated banks abroad. While these results imply a substantially more active lending channel than documented in Kashyap and Stein (2000), they also imply that the lending channel within the United States is declining in strength as banking becomes more globalized and monetary transmission abroad likewise increases in strength.

Available only in PDF pdf

41 pages / 233 kb

For a published version of this report, see Nicola Cetorelli and Linda S. Goldberg, "Banking Globalization and Monetary Transmission," Journal of Finance 67, no. 5 (October 2012): 1811-43.

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