A Global Lending Channel Unplugged? Does U.S. Monetary Policy Affect Cross‐Border and Affiliate Lending by Global U.S. Banks?

Abstract

We examine how U.S. monetary policy affects the international activities of U.S. banks. We access a rarely studied U.S. bank-level regulatory dataset to assess at a quarterly frequency how changes in the U.S. Federal funds rate (before the crisis) and quantitative easing (after the onset of the crisis) affect changes in cross-border claims by U.S. banks across countries, maturities and sectors, and also affect changes in claims by their foreign affiliates. We find robust evidence consistent with the existence of a potent global bank lending channel. In response to changes in U.S. monetary conditions, U.S. banks strongly adjust their cross-border claims in both the pre- and post-crisis period. However, we also find that U.S. bank affiliate claims respond mainly to host country monetary conditions.

Keywords: bank lending channel, monetary transmission, global banking, cross‐country analysis

JEL Classification: E44, E52, F42, G15, G21