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

50 Pages Posted: 29 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 2011

Abstract

The recent crisis highlighted the importance of globally active banks in linking markets. One channel for this linkage is through how these banks manage liquidity across their entire banking organization. We document that funds regularly flow 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 foreign affiliate features are associated with those businesses being protected, 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 lays a significant role in this allocation, where distance is bank-affiliate specific and depends on the ex ante relative importance of such locations as local funding pools and in their overall foreign investment strategies. These flows are a form of global interdependence previously unexplored in the literature on international shock transmission.

Suggested Citation

Cetorelli, Nicola and Goldberg, Linda S., Liquidity Management of U.S. Global Banks: Internal Capital Markets in the Great Recession (August 2011). NBER Working Paper No. w17355. Available at SSRN: https://ssrn.com/abstract=1918684

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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