Liquidity Management of U.S. Global Banks: Internal Capital Markets in the Great Recession

50 Pages Posted: 26 Aug 2011

See all articles by Nicola Cetorelli

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: August 1, 2011

Abstract

The recent crisis highlighted the importance of globally active banks in linking markets. One channel for this linkage is the liquidity management of these banks, specifically the regular flow of funds between parent banks and their affiliates in diverse foreign markets. We use the Great Recession as an opportunity to identify the balance-sheet shocks to parent banks in the United States and then explore which features of foreign affiliates are associated with protecting, for example, their status as important locations in sourcing funding or as destinations for foreign investment activity. We show that distance from the parent organization plays a significant role in this allocation, where distance is bank-affiliate specific and depends on the location’s ex ante relative importance in local funding pools and overall foreign investment strategies. These flows are a form of global interdependence previously unexplored in the literature on international shock transmission.

Keywords: banks, global, liquidity, transmission, capital markets, crisis

JEL Classification: E44, F36, G32

Suggested Citation

Cetorelli, Nicola and Goldberg, Linda S., Liquidity Management of U.S. Global Banks: Internal Capital Markets in the Great Recession (August 1, 2011). FRB of New York Staff Report No. 511. Available at SSRN: https://ssrn.com/abstract=1917452 or http://dx.doi.org/10.2139/ssrn.1917452

Nicola Cetorelli (Contact Author)

Federal Reserve Bank of New York ( email )

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

Linda S. Goldberg

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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