Global Liquidity and Drivers of Cross-Border Bank Flows

By Eugenio M Cerutti, Stijn Claessens, Lev Ratnovski

April 29, 2014

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Eugenio M Cerutti, Stijn Claessens, and Lev Ratnovski. Global Liquidity and Drivers of Cross-Border Bank Flows, (USA: International Monetary Fund, 2014) accessed December 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper provides a definition of global liquidity consistent with its meaning as the “ease of financing” in international financial markets. Using a longer time series and broader sample of countries than in previous studies, it identifies global factors driving cross-border bank flows, alongside country-specific factors. It confirms the explanatory power of US financial conditions, with flows decreasing in market volatility (VIX) and term premia, and increasing in bank leverage, growth in domestic credit and M2. A new finding is that similar variables for other systemic countries – the UK and the Euro Area – are also important, sometimes even more so, consistent with the dominant role of European banks in cross-border banking. Furthermore, recipient country characteristics are found to affect not only the level of country-specific flows, but also the cyclical impact of global liquidity, with sensitivities of flows to banks decreasing with stronger macroeconomic frameworks and better bank regulation, but less so for flows to non-financial firms.

Subject: Asset and liability management, Banking, Central bank policy rate, Credit, Cross-border banking, Financial services, International liquidity, Money, Yield curve

Keywords: Bank, Bank borrower, Bank claim, Bank leverage, Bank risk-taking, Central bank policy rate, Credit, Cross-border bank flow, Cross-border banking, Exchange rate, F21, F34, G15, G18, G21, G28, Global, International liquidity, WP, Yield curve

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/069
Stock No:

WPIEA2014069
ISBN:

9781475517729
ISSN:

1018-5941

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