The Two Faces of Cross-Border Banking Flows

44 Pages Posted: 23 Apr 2014 Last revised: 20 Aug 2015

Date Written: July 19, 2015


We examine the determinants of cross-border interbank and intra-group funding across crisis and non-crisis periods. Using a previously unexplored data set spanning 25 banking systems, we find aggregate intra-group funding is unrelated to fluctuations in either global or local macroeconomic fluctuations, while flightier interbank funding responds pro-cyclically to both worldwide and domestic economic trends. This feature of the data means intra-group funding remains comparatively stable when global conditions deteriorate -- even during the global financial crisis. During `normal' times we find intra-group funding responds counter-cyclically to global interest rate changes, with parent banks using affiliates to offset tighter global funding conditions. More generally, we find intra-group funding has a closer relationship with domestic banking system profitability and solvency, being used to support banks in weaker banking systems during the global financial crisis.

Keywords: Cross-border banking flows, global risk, parent banks and foreign affiliates

JEL Classification: F32, F34, G21

Suggested Citation

Reinhardt, Dennis and Riddiough, Steven, The Two Faces of Cross-Border Banking Flows (July 19, 2015). Available at SSRN: or

Dennis Reinhardt

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Steven Riddiough (Contact Author)

University of Toronto ( email )

Toronto, Ontario M5S 3G8


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