Liquidity management of U.S. global banks: Internal capital markets in the great recession

Nicola Cetorelli, Linda S. Goldberg

NBER Working Paper No. 17355
Issued in August 2011
NBER Program(s):International Finance and Macroeconomics

The recent crisis highlighted the importance of globally active banks in linking markets. One channel for this linkage is through how these banks manage liquidity across their entire banking organization. We document that funds regularly flow between parent banks and their affiliates in diverse foreign markets. We use the Great Recession as an opportunity to identify the balance sheet shocks to parent banks in the United States, and then explore which foreign affiliate features are associated with those businesses being protected, for example their status as important locations in sourcing funding or as destinations for foreign investment activity. We show that distance from the parent organization lays a significant role in this allocation, where distance is bank-affiliate specific and depends on the ex ante relative importance of such locations as local funding pools and in their overall foreign investment strategies. These flows are a form of global interdependence previously unexplored in the literature on international shock transmission.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w17355

Published:

• Cetorelli, Nicola & Goldberg, Linda S., 2012. "Liquidity management of U.S. global banks: Internal capital markets in the great recession," Journal of International Economics, Elsevier, vol. 88(2), pages 299-311. citation courtesy of
• Liquidity Management of U.S. Global Banks: Internal Capital Markets in the Great Recession, Nicola Cetorelli, Linda S. Goldberg. in Global Financial Crisis, Engel, Forbes, and Frankel. 2012

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