Global Banks and International Shock Transmission: - Federal Reserve Bank of New York

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Staff Reports

Global Banks and International Shock Transmission:

May 2010 Number 446

JEL classification: E44, F36, G32

Authors: Nicola Cetorelli and Linda S. Goldberg

Global banks played a significant role in transmitting the 2007-09 financial crisis to emerging-market economies. We examine adverse liquidity shocks on main developed-country banking systems and their relationships to emerging markets across Europe, Asia, and Latin America, isolating loan supply from loan demand effects. Loan supply in emerging markets across Europe, Asia, and Latin America was affected significantly through three separate channels: 1) a contraction in direct, cross-border lending by foreign banks; 2) a contraction in local lending by foreign banks’ affiliates in emerging markets; and 3) a contraction in loan supply by domestic banks, resulting from the funding shock to their balance sheets induced by the decline in interbank, cross-border lending. Policy interventions, such as the Vienna Initiative introduced in Europe, influenced the lending-channel effects on emerging markets of shocks to head-office balance sheets.

Available only in PDF pdf

41 pages / 245 kb

For a published version of this report, see Nicola Cetorelli and Linda S. Goldberg, "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review 59, no. 1 (April 2011): 41-76.

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