Search Results
Report
International banking and cross-border effects of regulation: lessons from the United States
Domestic prudential regulation can have unintended effects across borders and may be less effective in an environment where banks operate globally. Using U.S. micro-banking data for the first quarter of 2000 through the third quarter of 2013, this study shows that some regulatory changes indeed spill over. First, a foreign country?s tightening of limits on loan-to-value ratios and local currency reserve requirements increase lending growth in the United States through the U.S. branches and subsidiaries of foreign banks. Second, a foreign tightening of capital requirements shifts lending by ...
Working Paper
What Determines the Composition of International Bank Flows?
This paper studies how frictions to foreign bank operations affect the sectoral composition of banks? foreign positions, their funding sources and international bank flows. It presents a parsimonious model of banking across borders, which is matched to bank-level data and used to quantify cross-border frictions. The counterfactual analysis shows how higher barriers to foreign bank entry alter the composition of international bank flows and may reverse the direction of net interbank flows. It also highlights that interbank lending and lending to non-banking firms respond differently to changes ...
Report
No guarantees, no trade: how banks affect export patterns
This study provides evidence that shocks to the supply of trade finance have a causal effect on U.S. exports. The identification strategy exploits variation in the importance of banks as providers of letters of credit across countries. The larger a U.S. bank?s share of the trade finance market in a country, the larger should be the effect on exports to that country if the bank changes its supply of letters of credit. We find that a shock of one standard deviation to a country?s supply of letters of credit increases export growth, on average, by 1.5 percentage points. The effect is larger for ...
Report
International Trade, Risk and the Role of Banks
Banks play a critical role in international trade by providing trade finance products that reduce the risk of exporting. This paper employs two new data sets to shed light on the magnitude and structure of this business, which, as we show, is highly concentrated in a few large banks. The two principal trade finance instruments, letters of credit and documentary collections, covered about 10 percent of U.S. exports in 2012. They are preferred for larger transactions, which indicates the existence of substantial fixed costs in the provision and use of these instruments. Letters of credit are ...
Working Paper
The Dollar and Corporate Borrowing Costs
We show that U.S. dollar movements affect syndicated loan terms for U.S. borrowers, even for those without trade exposure. We identify the effect of dollar movements using spread and loan amount adjustments during the syndication process. Using this high-frequency, within loan variation, we find that a one standard deviation increase in the dollar index increases spreads by up to 15 basis points and reduces loan amounts and underpricing by up to 2 percent and 7 basis points, respectively. These effects are concentrated in dollar appreciations. Our results suggest that global factors reflected ...
Discussion Paper
What determines passthrough of policy rates to deposit rates in the euro area?
Interest rates on bank deposits are sticky and move only sluggishly following changes in central bank policy rates. As deposits are typically the largest share of bank liabilities, deposit rate stickiness plays a key role for bank funding costs and profitability.
Newsletter
How central bank swap lines affect the leveraged loan market
The cost of borrowing U.S. dollars through foreign exchange (FX) swap markets increased significantly at the beginning of the Covid-19 pandemic in February 2020, indicated by larger deviations from covered interest rate parity (CIP). CIP deviations narrowed again when the Federal Reserve expanded its swap lines to support U.S. dollar liquidity globally—by enhancing and extending its swap facility with foreign central banks and introducing the new temporary Foreign and International Monetary Authorities (FIMA) repurchase agreement facility for foreign and international monetary authorities. ...
Working Paper
International Trade Risk and the Role of Banks
International trade exposes exporters and importers to substantial risks. To mitigate these risks, firms can buy special trade finance products from banks. This paper explores under which conditions and to what extent firms use these products. We find that letters of credit and documentary collections cover about 10 percent of U.S. exports and are preferred for larger transactions, indicating substantial fixed costs. Letters of credit are employed the most for exports to countries with intermediate contract enforcement. Compared to documentary collections, they are used for riskier ...
Discussion Paper
How the Federal Reserve's Central Bank Swap Lines Have Supported U.S. Corporate Borrowers in the Leveraged Loan Market
The cost of borrowing U.S. dollars through foreign exchange (FX) swap markets increased significantly in the beginning of the Covid-19 pandemic in February 2020, indicated by larger deviations from Covered Interest Rate Parity (CIP). CIP deviations narrowed again when the Federal Reserve expanded its swap lines to support U.S. dollar liquidity globally—by enhancing and extending its swap facility with foreign central banks and introducing the new temporary Foreign and International Monetary Authorities (FIMA) repurchase agreement facility.
Report
Banking across borders with heterogeneous banks
Individual banks differ substantially in their foreign operations. This paper introduces heterogeneous banks into a general equilibrium framework of banking across borders to explain the documented variation. While the model matches existing micro and macro evidence, novel and unexplored predictions of the theory are also strongly supported by the data: The efficiency of the least efficient bank active in a host country increases the greater the impediments to banking across borders and the efficiency of the banking sector in the host country. There is also evidence of a tradeoff between ...