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Federal Reserve Bank of Boston
Working Papers
International financial integration, crises, and monetary policy: evidence from the euro area interbank crises
Puriya Abbassi
Falk Bräuning
Falko Fecht
Jose Luis Peydro
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.


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Puriya Abbassi & Falk Bräuning & Falko Fecht & Jose Luis Peydro, International financial integration, crises, and monetary policy: evidence from the euro area interbank crises, Federal Reserve Bank of Boston, Working Papers 17-6, 01 Jul 2017.
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Keywords: financial integration; financial crises; cross-border lending; monetary policy; euro area sovereign crisis; liquidity
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