Banking Globalization and Monetary Transmission

41 Pages Posted: 17 Jul 2008 Last revised: 9 Jul 2014

Nicola Cetorelli

Federal Reserve Bank of New York

Linda S. Goldberg

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2009

Abstract

The globalization of banking in the United States is influencing the monetary transmission mechanism both domestically and in foreign markets. Using quarterly information from all U.S. banks filing call reports between 1980 and 2006, we show that globalized banks activate internal capital markets with their overseas affiliates to insulate themselves partially from changes in domestic liquidity conditions. The existence of these internal capital markets directly contributes to an international propagation of domestic liquidity shocks to lending by affiliated banks abroad. While these results imply a substantially more active lending channel than documented in Kashyap and Stein (2000), they also imply that the lending channel within the United States is declining in strength as banking becomes more globalized and monetary transmission abroad likewise increases in strength.

Keywords: lending channel, bank, global, liquidity, internal capital markets

JEL Classification: E44, F36, G32

Suggested Citation

Cetorelli, Nicola and Goldberg, Linda S., Banking Globalization and Monetary Transmission (February 1, 2009). FRB of New York Staff Report No. 333. Available at SSRN: https://ssrn.com/abstract=1162253 or http://dx.doi.org/10.2139/ssrn.1162253

Nicola Cetorelli

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5071 (Phone)
212-720-8363 (Fax)

HOME PAGE: http://nyfedeconomists.org/cetorelli/

Linda S. Goldberg (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-2836 (Phone)
212-720-6831 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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