What are the Consequences of Global Banking for the International Transmission of Shocks?: A Quantitative Analysis

52 Pages Posted: 14 Dec 2018 Last revised: 21 Feb 2019

See all articles by Jose L. Fillat

Jose L. Fillat

Federal Reserve Banks - Federal Reserve Bank of Boston

Stefania Garetto

Boston University

Arthur Smith

Boston University, College of Arts and Sciences, Department of Economics, Students

Multiple version iconThere are 3 versions of this paper

Date Written: 2018-10-01

Abstract

The global financial crisis of 2008 was followed by a wave of regulatory reforms that affected large banks, especially those with a global presence. These reforms were reactive to the crisis. In this paper we propose a structural model of global banking that can be used proactively to perform counterfactual analysis on the effects of alternative regulatory policies. The structure of the model mimics the US regulatory framework and highlights the organizational choices that banks face when entering a foreign market: branching versus subsidiarization. When calibrated to match moments from a sample of European banks, the model is able to replicate the response of the US banking sector to the European sovereign debt crisis. Our counterfactual analysis suggests that pervasive subsidiarization, higher capital requirements, or ad hoc policy interventions would have mitigated the effects of the crisis on US lending.

Keywords: global banks, banking regulation, shock transmission

JEL Classification: F12, F23, F36, G21

Suggested Citation

Fillat, Jose L. and Garetto, Stefania and Smith, Arthur, What are the Consequences of Global Banking for the International Transmission of Shocks?: A Quantitative Analysis (2018-10-01). FRB of Boston Working Paper No. 18-11. Available at SSRN: https://ssrn.com/abstract=3301230

Jose L. Fillat (Contact Author)

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

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HOME PAGE: http://www.bos.frb.org/economic/econbios/fillat.htm

Stefania Garetto

Boston University ( email )

270 Bay State Road
Boston, MA 02215
United States

Arthur Smith

Boston University, College of Arts and Sciences, Department of Economics, Students ( email )

270 Bay State Road
Boston, MA
United States

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