Search Results
Report
The international transmission of monetary policy
This paper presents the novel results from an internationally coordinated project by the International Banking Research Network (IBRN) on the cross-border transmission of conventional and unconventional monetary policy through banks. Teams from seventeen countries use confidential micro-banking data for the years 2000 through 2015 to explore the international transmission of monetary policies of the United States, the euro area, Japan, and the United Kingdom. Two other studies use international data with different degrees of granularity. International spillovers into lending to the private ...
Report
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 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 ...
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. ...
Working Paper
The pricing of FX forward contracts: micro evidence from banks’ dollar hedging
We use transaction-level data on foreign exchange (FX) forward contracts for the period 2014 through 2016 in conjunction with supervisory balance sheet information to study the drivers of banks? dollar hedging costs. Comparing contracts of the same maturity that are initiated during the same hour of the same day, we find large heterogeneity in banks? hedging costs. We show that these costs (i) are higher for banks with a larger FX funding gap, (ii) depend on banks? FX funding composition in terms of the source (interbank versus retail) and rollover structure (long-term versus short-term), ...
Working Paper
Complexity of Global Banks and their Foreign Operation in Hong Kong
This paper studies the relation between the complexity of global banking organizations and their foreign banking operations (FBOs) in Hong Kong. Our empirical evidence indicates that the complexity of the parent company has significant effects on their Hong Kong branch?s business model, liquidity management, risk-taking, and profitability. The more complex the global banking organizations, their Hong Kong FBOs are more likely to derive a larger share of revenues from fee-based activities, and incur a higher cost of production despite enjoying a funding cost advantage. Notwithstanding the FBOs ...
Discussion Paper
Did Subsidies to Too-Big-To-Fail Banks Increase during the COVID-19 Pandemic?
Once a bank grows beyond a certain size or becomes too complex and interconnected, investors often perceive that it is “too big to fail” (TBTF), meaning that if the bank were to become distressed, the government would likely bail it out. In a recent post, I showed that the implicit funding subsidies to systemically important banks (SIBs) declined, on average, after a set of reforms for eliminating TBTF perceptions was implemented. In this post, I discuss whether these subsidies increased again during the COVID-19 pandemic and, if so, whether the increase accrued to large firms in all ...
Journal Article
Complexity in Large U.S. Banks
The structural complexity of the largest U.S. bank holding companies (BHCs) has been changing. Following the global financial crisis, the simplification of bank complexity was a policy priority. Using a variety of measures of organizational, business, and geographic complexity, the authors show that large U.S. BHCs nonetheless remain very complex. Organizational complexity has declined, as the average number of legal entities within large U.S. BHCs has fallen. By contrast, the range of industries spanned by legal entities within the BHCs has shifted more than it has declined, especially ...
Discussion Paper
Will Capital Flows through Global Banks Support Economic Recovery?
While policymakers around the world have aggressively and swiftly reacted to the common negative economic shock from COVID-19, the timing and forms of policy responses in the economic recovery stage may be more geographically differentiated. The range in policy responses, along with variations in the financial health of banks, likely will affect the flow of international credit through global banks. In this post, we ask whether, based on historical precedent, global banks are likely to provide additional support to the economic recovery in the locations they serve.
Report
Organizational complexity and balance sheet management in global banks
Banks have progressively evolved from being standalone institutions to being subsidiaries of increasingly complex financial conglomerates. We conjecture and provide evidence that the organizational complexity of the family of a bank is a fundamental driver of the business model of the bank itself, as reflected in the management of the bank?s own balance sheet. Using micro-data on global banks with branch operations in the United States, we show that branches of conglomerates in more complex families have a markedly lower lending sensitivity to funding shocks. The balance sheet management ...
Discussion Paper
How Has the Business of International Banking Changed?
In this post, I focus on the broad historical progression of international banking activity. This broad progression serves as a backdrop for a range of other discussions and posts on global banking, on issues such as foreign banking organizations’ use of liquidity facilities in the United States and the role of banks in international risk-sharing and international transmission of shocks. It also helps explain the policy regimes in place through recent financial crises and even some of the data gaps that regulators and researchers have encountered.