International Financial Integration, Crises, and Monetary Policy: Evidence from the Euro Area Interbank Crises

48 Pages Posted: 7 Sep 2017

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

Jose-Luis Peydro

Catalan Institution of Research and Advanced Studies (ICREA); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Barcelona Graduate School of Economics (Barcelona GSE); Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR)

Date Written: 2017-07-01

Abstract

We analyze how financial crises affect international financial integration, exploiting euro area proprietary interbank data, crisis and monetary policy shocks, and variation in loan terms to the same borrower on the same day by domestic versus foreign lenders. Crisis shocks reduce the supply of crossborder liquidity, with stronger volume effects than pricing effects, thereby impairing international financial integration. On the extensive margin, there is flight to home — but this is independent of quality. On the intensive margin, however, GIPS-headquartered debtor banks suffer in the Lehman crisis, but effects are stronger in the sovereign-debt crisis, especially for riskier banks. Nonstandard monetary policy improves interbank liquidity, but without fostering strong cross-border financial reintegration.

Keywords: financial integration, financial crises, cross-border lending, monetary policy, euro area sovereign crisis, liquidity

JEL Classification: E58, F30, G01, G21, G28

Suggested Citation

Abbassi, Puriya and Bräuning, Falk and Fecht, Falko and Peydro, Jose-Luis, International Financial Integration, Crises, and Monetary Policy: Evidence from the Euro Area Interbank Crises (2017-07-01). FRB of Boston Working Paper No. 17-6. Available at SSRN: https://ssrn.com/abstract=3029742

Puriya Abbassi (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
00496965993708 (Phone)

Falk Bräuning

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

600 Atlantic Avenue
Boston, MA 02210
United States

Falko Fecht

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Jose-Luis Peydro

Catalan Institution of Research and Advanced Studies (ICREA) ( email )

P/ Lluis Companys 23
Barcelona, 08010
Spain

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

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

HOME PAGE: http://www.barcelonagse.eu/Faculty.php?id=432

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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