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Author:Niepmann, Friederike 

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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 ...
Staff Reports , Paper 609

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 ...
Staff Reports , Paper 633

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 ...
Staff Reports , Paper 793

Report
What determines the composition of international bank flows?

Several recent studies document that the extent to which banks transmit shocks across borders depends on the type of foreign activities these banks engage in. This paper proposes a model to explain the composition of banks? foreign activities, distinguishing between international interbank lending, intrabank lending, and cross-border lending to foreign firms. The model shows that the different activities are jointly determined and depend on the efficiencies of countries? banking sectors, differences in the return on loans across countries, and impediments to foreign bank operations. ...
Staff Reports , Paper 681

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 ...
Staff Reports , Paper 659

Report
Banking across borders

The international linkages between banks play a crucial role in today?s global economy. Existing models explain these links on the basis of portfolio theory, in which banks diversify lending. These models have found only limited empirical support and do not speak to many relevant dimensions of the data. For example, they do not address heterogeneity in the degree to which banking sectors fund their foreign operations locally in foreign markets. This paper proposes an alternative theory to explain banking across borders that is based on elements of international trade theory. In the model, ...
Staff Reports , Paper 576

Working Paper
Institutional Investors, the Dollar, and U.S. Credit Conditions

This paper documents that an appreciation of the U.S. dollar is associated with a reduction in the supply of commercial and industrial loans by U.S. banks. An increase in the broad dollar index by 2.5 points (one standard deviation) reduces U.S. banks' corporate loan originations by 10 percent. This decline is driven by a reduction in the demand for loans on the secondary market where prices fall and liquidity worsens when the dollar appreciates, with stronger effects for riskier loans. Today, the main buyers of U.S. corporate loans---and, hence, suppliers of funding for these loans---are ...
International Finance Discussion Papers , Paper 1246

Working Paper
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, foreign tightening of capital requirements shifts lending by U.S. ...
International Finance Discussion Papers , Paper 1180

Working Paper
Modeling Your Stress Away

We investigate systematic changes in banks' projected credit losses between the 2014 and 2016 EBA stress tests, employing methodology from Philippon et al. (2017). We find that projected credit losses were smoothed across the tests through systematic model adjustments. Those banks whose losses would have increased the most from 2014 to 2016 due to changes in the supervisory scenarios-keeping the models constant and controlling for changes in the riskiness of underlying portfolios-saw the largest decrease in losses due to model changes. Model changes were more pronounced for banks that rely ...
International Finance Discussion Papers , Paper 1232

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 ...
International Finance Discussion Papers , Paper 1151

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