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
Date Written: August 27, 2014
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: Suggested Citation