Crises and Rescues: Liquidity Transmission Through International Banks

36 Pages Posted: 26 Aug 2016

See all articles by Claudia M. Buch

Claudia M. Buch

Deutsche Bundesbank

Cathérine Koch

Bank for International Settlements (BIS)

Michael Koetter

Halle Institute for Economic Research

Date Written: August 2016


This paper studies how global banks transmit liquidity shocks via their internal capital markets. The unexpected access of German banks' affiliates located in the United States (US) to the Federal Reserve's Term Auction Facility (TAF) serves as our liquidity shock. Using microdata on all affiliates abroad, we test whether affiliates located outside the US adjusted their balance sheets during periods, when the US-located affiliate of the same parent received TAF loans. Our analysis has three main findings. First, during periods of active TAF borrowing, foreign affiliates of parent banks with high US dollar funding needs reduced their foreign assets by less. We identify those parents based on their pre-crisis exposure to the US asset-backed commercial paper (ABCP) market. Second, foreign affiliates in financial centers also shrank their assets less. Third, there is no evidence that the ABCP exposure per se is driving the reduction of activity outside the US. In sum, our results show that the TAF program spilled over into foreign markets, while highlighting the importance of actively managed internal capital markets and the increased centralization of global banks' liquidity management at the domestic parent during and after the financial crisis.

Keywords: Term Auction Facility, international banking, liquidity shock, bank funding structure, ABCP exposure

JEL Classification: G01, F34, G21

Suggested Citation

Buch, Claudia M. and Koch, Catherine and Koetter, Michael, Crises and Rescues: Liquidity Transmission Through International Banks (August 2016). BIS Working Paper No. 576, Available at SSRN:

Claudia M. Buch

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431

Catherine Koch (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

Michael Koetter

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108


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