International Banking and Nonbank Financial Intermediation: Global Liquidity, Regulation, and Implications

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Staff Reports

International Banking and Nonbank Financial Intermediation: Global Liquidity, Regulation, and Implications

Number 1091
March 2024

JEL classification: F3, G21, G23, G28

Authors: Claudia M. Buch and Linda S. Goldberg

Global liquidity flows are largely channeled through banks and nonbank financial institutions. The common drivers of global liquidity flows include monetary policy in advanced economies and risk conditions. At the same time, the sensitivities of liquidity flows to changes in these drivers differ across institutions and have been evolving over time. Microprudential regulation of banks plays a role, influencing leverage and capitalization, changing sensitivities to shocks, and also driving risk migration from banks to nonbank financial institutions. Risk sensitivities and flightiness of global liquidity are now strongest in more leveraged nonbank financial institutions, raising challenges in stress episodes. Current policy initiatives target linkages across different types of financial institutions and associated risks. Meanwhile, significant gaps remain. This paper concludes by discussing policy options for addressing systemic risk in banks and nonbanks.

Full Article

Author Disclosure Statement(s)

Claudia M. Buch
I declare that I have no relevant or material financial interests that relate to the research described in this paper. I was employed by the Deutsche Bundesbank when I contributed to this paper.

Linda S. Goldberg
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Suggested Citation:
Buch, Claudia M. and Linda S. Goldberg. 2024. “International Banking and Nonbank Financial Intermediation: Global Liquidity, Regulation, and Implications.” Federal Reserve Bank of New York Staff Reports, no. 1091, March. https://doi.org/10.59576/sr.1091

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