Implications of Liquidity Management of Global Banks for Host Countries — Evidence from Foreign Bank Branches in Hong Kong

HKIMR Working Paper No.21/2014

24 Pages Posted: 27 Aug 2014

See all articles by T. C. Wong

T. C. Wong

Hong Kong Monetary Authority - Research Department

Andrew Tsang

Hong Kong Monetary Authority

Steven Kong

Hong Kong Monetary Authority

Date Written: August 27, 2014

Abstract

Using a regulatory dataset of foreign bank branches in Hong Kong, this study finds evidence of the international transmission of funding shocks from home countries of global banks through their internal capital markets during the 2007-08 financial crisis. Global banks are found to buffer parent-bank liquidity shocks by repatriating cross-border internal funding, leading to reductions in loan supply by branches in Hong Kong. Branches with a higher loan-to-asset ratio are estimated to cut loan supply sharper than their counterparts. More liquid assets held by parent banks and central bank liquidity are found to reduce the extent of shock transmission significantly.

Keywords: Global Banks, Internal Capital Market, Liquidity Management, Shock Transmission

JEL Classification: E44, F36, G32

Suggested Citation

Wong, Tak-Chuen and Tsang, Andrew and Kong, Steven, Implications of Liquidity Management of Global Banks for Host Countries — Evidence from Foreign Bank Branches in Hong Kong (August 27, 2014). HKIMR Working Paper No.21/2014. Available at SSRN: https://ssrn.com/abstract=2487750 or http://dx.doi.org/10.2139/ssrn.2487750

Tak-Chuen Wong

Hong Kong Monetary Authority - Research Department ( email )

55/F, Two International Finance Centre,
8 Finance Street, Central,
Hong Kong
Hong Kong

Andrew Tsang (Contact Author)

Hong Kong Monetary Authority ( email )

55/F, Two International Finance Centre
Hong Kong
Hong Kong

Steven Kong

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

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