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Discussion Paper
Follow That Money! How Global Banks Manage Liquidity Globally
Banks increasingly move money around the world. Over the last thirty years, gross international claims of banks from all countries have grown ten-fold, reaching a peak of about $25 trillion in 2007 (see chart below). Such global banking flows have been much in the news recently, sometimes depicted as a key culprit of the transmission around the globe of the shocks following the bankruptcy of Lehman Brothers, and more recently the European sovereign debt crisis. The discourse in the regulatory arena seems to share this sentiment, with a bias towards curbing some of the global banking activity ...
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 ...
Working Paper
Bank Complexity, Governance, and Risk
Bank holding companies (BHCs) can be complex organizations, conducting multiple lines of business through many distinct legal entities and across a range of geographies. While such complexity raises the the costs of bank resolution when organizations fail, the effect of complexity on BHCs' broader risk profiles is less well understood. Business, organizational, and geographic complexity can engender explicit trade-offs between the agency problems that increase risk and the diversification, liquidity management, and synergy improvements that reduce risk. The outcomes of such trade-offs may ...
Journal Article
Measures of global bank complexity
Size and complexity are customarily viewed as contributing to the too-big-to-fail status of financial institutions. Yet there is no standard accepted metric for the complexity of a ?typical? financial firm, much less for a large firm engaged in global finance. This article provides perspective on the issue of complexity by examining the number, types, and geographical spread of global financial institutions? affiliates. The authors show that standard measures of institution size are strongly related to total counts of affiliates in an organization, but are more weakly aligned with other ...
Working Paper
U.S. Banks and Global Liquidity
We characterize how U.S. global systemically important banks (GSIBs) supply short-term dollar liquidity in repo and foreign exchange swap markets in the post-Global Financial Crisis regulatory environment and serve as the "lenders-of-second-to-last-resort". Using daily supervisory bank balance sheet information, we find that U.S. GSIBs modestly increase their dollar liquidity provision in response to dollar funding shortages, particularly at period-ends, when the U.S. Treasury General Account balance increases, and during the balance sheet taper of the Federal Reserve. The increase in the ...
Working Paper
Foreign competition and banking industry dynamics: an application to Mexico
The authors develop a simple general equilibrium framework to study the effects of global competition on banking industry dynamics and welfare. They apply the framework to the Mexican banking industry, which underwent a major structural change in the 1990s as a consequence of both government policy and external shocks. Given the high concentration in the Mexican banking industry, domestic and foreign banks act strategically in the authors? framework. After calibrating the model to Mexican data, the authors examine the welfare consequences of government policies that promote global ...