Foreign Currency Bank Funding and Global Factors

May 9, 2018

Preview Citation

Format: Chicago

Signe Krogstrup, and Cédric Tille. Foreign Currency Bank Funding and Global Factors, (USA: International Monetary Fund, 2018) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The literature on the drivers of capital flows stresses the prominent role of global financial factors. Recent empirical work, however, highlights how this role varies across countries and time, and this heterogeneity is not well understood. We revisit this question by focusing on financial intermediaries’ funding flows in different currencies. A concise portfolio model shows that the sign and magnitude of the response of foreign currency funding flows to global risk factors depend on the financial intermediary’s pre-existing currency exposure. An analysis of a rich dataset of European banks’ aggregate balance sheets lends support to the model predictions, especially in countries outside the euro area.

Subject: Balance of payments, Banking, Capital flows, Currencies, Exchange rate risk, Financial regulation and supervision, Financial statements, Foreign currency exposure, Money, Public financial management (PFM)

Keywords: Balance sheet exposure, Bank flow, Bank foreign currency, Bank funding, Capital flows, Cross border, Cross-border transmission of shocks, Currencies, Currency mismatch, European bank balance sheets, Exchange rate, Exchange rate risk, Exposure measure, Financial institution, Financial statements, Foreign currency borrowing, Foreign currency exposure, Forward contract, Forward market, Global, Push factors, Risk aversion, Spillovers, Swap market, Wholesale funding, WP

Publication Details

Pages:

64
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/097
Stock No:

WPIEA2018097
ISBN:

9781484353660
ISSN:

1018-5941

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