Follow the Money: Quantifying Domestic Effects of Foreign Bank Shocks in the Great Recession

15 Pages Posted: 10 Feb 2012

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: February 1, 2012

Abstract

Foreign banks pulled significant funding from their U.S. branches during the Great Recession. We estimate that the average-sized branch experienced a 12 percent net internal fund “withdrawal,” with the fund transfer disproportionately bigger for larger branches. This internal shock to the balance sheets of U.S. branches of foreign banks had sizable effects on their lending. On average, for each dollar of funds transferred internally to the parent, branches decreased lending supply by about forty to fifty cents. However, the extent of the lending effects was very different across branches, depending on their precrisis modes of operation in the United States.

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

JEL Classification: E44, F36, G32

Suggested Citation

Cetorelli, Nicola and Goldberg, Linda S., Follow the Money: Quantifying Domestic Effects of Foreign Bank Shocks in the Great Recession (February 1, 2012). FRB of New York Staff Report No. 545. Available at SSRN: https://ssrn.com/abstract=2002229 or http://dx.doi.org/10.2139/ssrn.2002229

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 )

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

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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