Cross-Border Interbank Liquidity, Crises, and Monetary Policy

53 Pages Posted: 26 Feb 2015 Last revised: 11 Sep 2020

See all articles by Puriya Abbassi

Puriya Abbassi

Deutsche Bundesbank

Falk Bräuning

Federal Reserve Banks - Federal Reserve Bank of Boston

Falko Fecht

Frankfurt School of Finance & Management

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Multiple version iconThere are 3 versions of this paper

Date Written: August 26, 2020

Abstract

We analyze how the Lehman and sovereign crises affect cross-border interbank liquidity, exploiting euro-area proprietary interbank data, crisis and monetary shocks, and loan terms to the same borrower during the same day by domestic versus foreign lenders. Crisis shocks reduce the supply of cross-border liquidity, with stronger volume than pricing effects. On the extensive margin, results suggest that the cross-border credit crunch is independent of borrower quality, while—on the intensive margin—riskier borrower banks suffer more. Moreover, the cross-border liquidity crunch is substantially stronger for term loans, and weaker for foreign lender banks that have a subsidiary in the same country than the borrower. Finally, nonstandard monetary policy improves interbank liquidity, but without fostering strong re-integration of cross-border interbank markets.

Keywords: international liquidity, financial crises, cross-border lending, monetary policy, banks.

JEL Classification: E52, F30, G01, G21, G28.

Suggested Citation

Abbassi, Puriya and Bräuning, Falk and Fecht, Falko and Peydro, Jose-Luis, Cross-Border Interbank Liquidity, Crises, and Monetary Policy (August 26, 2020). Journal of International Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2570761 or http://dx.doi.org/10.2139/ssrn.2570761

Puriya Abbassi (Contact Author)

Deutsche Bundesbank ( email )

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Falk Bräuning

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

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Falko Fecht

Frankfurt School of Finance & Management ( email )

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Jose-Luis Peydro

Imperial College London ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

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Spain
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