Cross-Border Flows and Monetary Policy

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Serie

2017 Meeting Papers

Resumen

We analyze the impact of monetary policy on cross-border bank flows using BIS Locational Banking Statistics data from 1995 to 2014. We find that monetary policy in the source countries is an important determinant of cross-border bank flows. In addition, we find evidence in favor of a cross-border portfolio reallocation channel that works in parallel with the traditional bank lending channel. As tighter monetary conditions in source countries erode the net worth and collateral values of domestic borrowers, banks reallocate credit away from relatively risky domestic borrowers toward safer foreign counterparties. The cross-border reallocation of credit is more pronounced for banks in source countries with higher prevalence of household credit and weaker financial sectors. Also, the reallocation is directed especially toward foreign non-bank borrowers in advanced economies, or those in economies with investment grade sovereign rating. Thus, our study highlights the spillovers from domestic monetary policy on the dynamics of domestic and foreign credit, enhancing the understanding of the domestic and international monetary transmission mechanisms in the presence of global banks.

autores

fecha de publicación

2017

Área temática

Líneas de investigación

Cross Border Bank Flows
Monetary Policy
Portfolio Rebalancing

Issue

335