Liquidity Risk and U.S. Bank Lending at Home and Abroad

31 Pages Posted: 24 Jul 2014

See all articles by Ricardo Correa

Ricardo Correa

Board of Governors of the Federal Reserve System

Linda S. Goldberg

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

Tara Rice

BlackRock, Inc

Multiple version iconThere are 3 versions of this paper

Date Written: July 2014

Abstract

While the balance sheet structure of U.S. banks influences how they respond to liquidity risks, the mechanisms for the effects on and consequences for lending vary widely across banks. We demonstrate fundamental differences across banks without foreign affiliates versus those with foreign affiliates. Among the nonglobal banks (those without a foreign affiliate), cross-sectional differences in response to liquidity risk depend on the banks' shares of core deposit funding. By contrast, differences across global banks (those with foreign affiliates) are associated with ex ante liquidity management strategies as reflected in internal borrowing across the global organization. This intra-firm borrowing by banks serves as a shock absorber and affects lending patterns to domestic and foreign customers. The use of official-sector emergency liquidity facilities by global and nonglobal banks in response to market liquidity risks tends to reduce the importance of ex ante differences in balance sheets as drivers of cross-sectional differences in lending.

Suggested Citation

Correa, Ricardo and Goldberg, Linda S. and Rice, Tara, Liquidity Risk and U.S. Bank Lending at Home and Abroad (July 2014). NBER Working Paper No. w20285. Available at SSRN: https://ssrn.com/abstract=2471178

Ricardo Correa (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Linda S. Goldberg

Federal Reserve Bank of New York ( email )

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

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Tara Rice

BlackRock, Inc

55 East 52nd Street
New York City, NY 10055
United States

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