Working Paper

International financial integration, crises, and monetary policy: evidence from the euro area interbank crises


Abstract: We analyze how financial crises affect international financial integration, exploiting euro area proprietary interbank data, crisis and monetary policy shocks, and variation in loan terms to the same borrower on the same day by domestic versus foreign lenders. Crisis shocks reduce the supply of crossborder liquidity, with stronger volume effects than pricing effects, thereby impairing international financial integration. On the extensive margin, there is flight to home ? but this is independent of quality. On the intensive margin, however, GIPS-headquartered debtor banks suffer in the Lehman crisis, but effects are stronger in the sovereign-debt crisis, especially for riskier banks. Nonstandard monetary policy improves interbank liquidity, but without fostering strong cross-border financial reintegration.

Keywords: euro area sovereign crisis; monetary policy; liquidity; financial crises; financial integration; cross-border lending;

JEL Classification: G21; G28; E58; G01; F30;

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Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Working Papers

Publication Date: 2017-07-01

Number: 17-6

Pages: 48 pages