September 2018 issue contents
Crises and Rescues: Liquidity Transmission through Global Banks

by Claudia Bucha Cathérine Kochb and Michael Koetterc,d


This paper shows that global banks transmit liquidity shocks via their network of foreign affiliates. We use the (unexpected) access of German banks' affiliates located in the United States to the Federal Reserve's Term Auction Facility. We condition on the parent banks' U.S. dollar funding needs in order to examine how affiliates located outside the United States adjusted their balance sheets when the U.S. affiliate of the same parent tapped into TAF liquidity. Our research has three main findings. First, affiliates tied to parents with higher U.S. dollar funding needs expanded their foreign assets during periods of active TAF borrowing. Second, the overall effects are driven by affiliates located in financial centers. Third, U.S.- dollar-denominated lending particularly increased in response to the TAF program.

JEL Code: G01, F34, G21.

Full article (PDF, 42 pages, 679 kb)

a Deutsche Bundesbank
b Bank for International Settlements
c Halle Institute for Economic Research (IWH)
d Otto-von-Guericke University Magdeburg