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Banking Globalization, Monetary Transmission, and the Lending

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Banking Globalization, Monetary Transmission, and the Lending The International Banking Research Network: Approaches and Initiatives Claudia M. Buch (Deutsche Bundesbank) Linda Goldberg (Federal Reserve Bank of New York) Joint IBRN-IMF Workshop | Washington DC | October 15, 2019 National Bank of Poland Oesterreichische Nationalbank Deutsche Bundesbank Sveriges Riksbank Norges Bank Central Bank of Russia Bank of Danmarks Nationalbank Canada Bank of England Central Bank of Ireland De Nederlandsche Bank Banque de France US Federal Reserve Banco de España Bank of Japan Banco de Portugal Bank of Korea Reserve Hong Kong Swiss National Bank Bank of Banco de Monetary Authority India México Banka Slovenije Banca D’Italia Central Bank of Central Bank of the Bank of Greece Colombia Republic of Turkey Banco Central do Brasil Bank of Israel Reserve Bank of Australia Central Bank of Chile International Organizations Bank for Organisation for Economic Financial International International European Central Bank European Systemic Risk Board Cooperation and Stability Board Monetary Fund Settlements Development 2 How does the IBRN operate? 3 Collectively determine policy- relevant issue Analyze (confidential) bank- level datasets Use common methodology, complement with cross- country perspective Share code, results, and perform meta analysis 4 What are the key research questions and outputs? 5 International transmission Adjustment of bank of monetary policy lending to liquidity risk through bank lending Interaction between Cross-border lending monetary and prudential effects of policies for bank lending macroprudential tools Complexity of international banks: implications for bank risk 6 International transmission Adjustment of bank of monetary policy lending to liquidity risk through bank lending Interaction between Cross-border lending monetary and prudential effects of policies for bank lending macroprudential tools Complexity of ? international banks: implications for bank risk 7 Changes in Prudential Policy Instruments---A New Cross-Country Database* Eugenio Cerutti,a Ricardo Correa,b Elisabetta Fiorentino,c and Esther Segallad aInternational Monetary Fund bFederal Reserve Board cDeutsche Bundesbank dOesterreichische Nationalbank Now updated! http://www.eugeniocerutti .com/Datasets 8 What are the key take aways? 9 . Banks react differently to policy shocks. – International banks use internal capital markets to buffer shocks. – Tightened prudential regulations shift market shares towards the stronger banks. Countries differ. – Responses monetary policy shocks depend on access to FX funding and market structures. – Home and host countries of global banks are affected differently by policy shocks. Policy effects are “richer” than the conventional wisdom suggests. – Transmission of monetary policy shocks across border does not resemble the traditional bank-lending and portfolio channels. – Adjustment of bank lending provides no strong evidence for a global financial cycle. 10 What are broader lessons for policy evaluation? 11 Granular data are needed to identify policy effects. A good data strategy is crucial. Structured policy evaluation is important. 12 The IBRN thanks for your attention! 13 Supplemental 14 G20 framework for evaluation of financial sector reforms . The Financial Stability Board provides a framework for coordination of policy evaluation across jurisdictions. • … to understand spill-overs and cross border effects • … to exploit heterogeneity in responses of affected agents . The framework addresses three key questions. • Did the reform “cause” an outcome? Attribution • Do effects differ across agents, time, jurisdictions? Heterogeneity • Can we draw conclusions about overall effects? General Equilibrium . Understanding policy effectiveness requires an explicit policy process with ex ante and ex post policy evaluation. 15 16 Source: Cavallo (2018) How do global banks adjust lending to liquidity risk? . Cross-border lending reacts more than domestic lending. Domestic affiliates react more than foreign affiliates to shocks to parents’ balance sheets. Responses to prudential policies do not vary much over the financial or business cycles. 17 How do prudential policies spill over through bank lending? . Affiliates of foreign banks react more than home-country global banks. Market shares shift towards the stronger (better capitalized) banks. There is heterogeneity across banks, reflecting – … the use of internal capital markets. – … the stabilizing role of core deposits. 18 How is monetary policy transmitted internationally into bank lending? . Domestic lending activity is more insulated than expected. Transmission does not follow a simple “bank lending” or “portfolio” channels. The degree of spillovers differs between source countries. Banks’ internal capital markets matter. 19.
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